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GREENWICH NATWEST FUTURES
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(November 2, 1997) STOCK INDICES: December S&P 500 futures settled at 924.00 Friday, down 20.00 from the previous week's close. The fact that the market closed only twenty dollars lower for the week is pretty amazing, considering that it traded all the way down to 844.00 last Tuesday (October 28) before rallying back. Last week's sharp move to the downside turned the major daily trend of the market down (bearish). However, the longer-term major weekly trend still remains up. This new major daily downtrend will remain in force as long as the 948.80 (its fifty-day moving average) area loosely contains price on the upside. The longer-term major weekly uptrend will remain valid as long as major weekly support located at the 864.50 level (its fifty-week moving average) loosely contains price on the downside this week. This major weekly support was tested and loosely held last week, indicating it is still in force. So what we have here is a market that is caught in the middle of a major weekly uptrend and a major daily downtrend. The next large, several week to several month directional move is very likely to begin once price breaks out of this “window” bordered by the 948.80 and the 864.50 areas. Due to an unusual amount of bearish technical bias apparent in analysis of the daily, weekly, and monthly charts, at this time it appears that his impending large directional move will be to the downside.
Bearish divergence continues to exist between price and weekly and monthly momentum indicators. (Bearish divergence occurs when a new high in price is accompanied by a lower low in a technical indicator that measures market momentum. This divergence indicates technical weakness, and very often precedes a significant move to the downside.) Declining weekly oscillators (overbought/oversold indicators) combined with this divergence suggests two to three more weeks of lower prices are impending.
My work suggests that the current sharp rally back from last week's 844.00 low is a failure swing, and likely to provide a selling opportunity over the next one to several weeks. There are three important levels of overhead resistance to watch closely this week. How price reacts to them should act as good gauge as to whether the market is in fact on the verge of beginning a large move to the downside, or if the major weekly uptrend is resuming. The first is the 930.35 level, and represents an area that must loosely contain on the upside in order for bearish daily market momentum to remain in force. (The location of this level will change daily.) The second is the market's fifty-day moving average at the 948.80 level. The third is the 962.85 level, which should loosely define the highs this week in order for bearish longer-term weekly momentum to remain valid. Weekly momentum turned down (bearish) last week, but it had been up since May 16. The last time that it turned down was the week of March 21, and immediately preceded a price decline from 810.45 to 756.70 before the weekly uptrend resumed.
A large double top pattern appears to have formed on the daily chart. The minimum downside objective of this bearish pattern is 826.35. Also, a bearish key reversal was recently made on the monthly chart. This warns of lower prices over the next one to several months.
John J. Kosar
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