Weekly Chart Review

Retest and higher from here?

We’re only going to look at the S&P 500 Index this week but we’re going to do it through two different lenses – 1) Heikin Ashi price bars and 2) a “normal” candlestick chart.

I’ve used the Heikin Ashi bars a lot lately because they are really good a signifying trends.  With that said, it is important to balance that analysis with what the “normal” candlestick chart is telling us.

One thing both charts are telling us is that the S&P 500 Index has broken through a year long downtrend (blue line) and retested that downtrend line the last two weeks in a row.  Net/net, that is a positive outcome.

If you’ve read my recent pieces, I’ve noted that while everything I noted above is a positive outcome, I’ve suggested that what we’ve seen the last two weeks looks eerily similar to the beginning of downtrends we’ve see in the past.  That is still the case, but we appear to be at an even more critical juncture as I will explain below.

Let’s start by looking at the Heikin Ashi bars.

Note that the even though the S&P 500 Index registered a positive week, it still generated a “red candle” using the Heikin Ashi bars.  This is because the Heikin Ashi candles are focused on average price movements.  Despite a positive price week for the S&P 500 Index, the Heikin Ashi candles indicate that the price trend is still lower.

Additionally, note that typically before a reversal in price, the Heikin Ashi price bars will indicate this by having an “upper wick” or “upper shadow” the week or two prior to the reversal taking place.  I have noted how this has played out in the past using the black arrows.  This last week did not register a “upper wick/shadow” thus further suggesting that the trend is lower.

Turning to the “normal” candlestick chart, we have a couple developments that could turn out to be very positive for the S&P 500 Index.

First, as noted above, we have broken through the downtrend and retested that trend line.  While this is very much a positive, it will be key to see what we do from here.

Second, last week’s price action appears to be what is often referred to as a “bull hammer” (as indicated by the black circle).  Note the “bull hammer” example in the upper left of the chart.  Typically, a “bull hammer” signifies a positive trend going forward over the short-term.

Third, while it has a slightly greater slope than I would prefer, you can make the case for a possible inverse Head & Shoulders pattern.  If that is the case, and the last two weeks have been retests of the neckline, the measured move projection would be for a target of ~4,708 which is clearly a very positive move.

Conclusion

I think this is a critical week for the S&P 500 Index.  If we close higher than last week, you have to start thinking about 4,165 as your first target.  Alternatively, a bad outcome becomes one that closes below the blue trend line.  If that happens, we’ll examine next week where we go from there, but the bias will be lower.

Putting it all together, I think this is a week where you have to sit back and let the market tell you what it plans to do over the short term because as it stands today, you can make a case in either direction.