Stock Market Oscillating Between Support and Resistance Before Choosing a Direction

By: Angelo_Campione

General Commentary: The system for the SPY is on a Buy signal 50%

As anticipated, the market hit resistance around 1110 and essentially went sideways for the week, so not a lot of change from the prior week.

For the week ahead, we'll probably get more oscillating action between 1090 and 1110 before a direction is chosen. At this stage, the direction for March could go either way, although we are leaning on the bullish side at this point.

I know it's somewhat surprising to be leaning on the bullish side when the general fundamentals of not only the US but also the European economies seem dubious. However all markets go through cycles and the messages we receive through the media often doesn't match up with these underlying cycles.

What the media doesn't report is that there's a huge flow on effect from all the stimulus initiatives implemented by governments worldwide. So for the medium term, this cash is flowing into company bottom lines and encouraging everyone concerned.

Logically, I think we all know that a price will need to be paid at some point for simply printing money as a solution to the issues but often logic is overlooked when survival is in doubt.

SPX Chart - Much Bigger Picture

Here's a chart I like to show at the end of the month to see how the much bigger picture is looking.

The market closed on Friday above the 20 month EMA and so we remain in a new bull market phase (for the new readers, the 20 month EMA is a simple indicator to determine a bigger picture bull or bear market)

At this point, we continue to resemble the mid 2003 period. As long as the market finishes each month above the 20 month EMA, we have to concede that we're in the beginning stages of new big bull.

SPX Chart - Bigger Picture

For the mid term, there's no change, the uptrend remains in tact.

The linear MACD also has the potential to cross back into positive territory from here.

SPX Chart - Shorter Picture

The shorter term shows how the market met resistance at both the 50 DMA and the trading range from mid November to early December.

The likelihood is that we get more range bound trading around this area. Any dip into the 1070 - 1080 region still looks like a reasonable place to initiate a long position.

For the week ahead, support on the SPX is 1070 - 1080 and resistance is 1110 - 1120.

The VIX Picture

The VIX is interesting here, while we got a close below 20 (indicating that complacency is setting in again), we could be seeing a bullish wedge develop.

If the market does go sideways this coming week, we're likely to see the VIX fill in the wedge pattern drawn on the chart.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.

Performance
We're using a starting capital of $5,000 and allocations are based on 25% of this or the remaining balance.

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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By Angelo Campione

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