- Analysis of the S&P chart shows a very strong and stable uptrend with no end-of-trend patterns.
- But this does not rule out the potential for a retracement and consolidation.
- This behaviour is common in all uptrends and provides a good buying opportunity.
Speculation about the imminent collapse of the continues. This speculation is based on a fear of heights. The speculation uses the same reasoning that has forecast a collapse of the S&P when it was at 2,250, and then at 2,350. This is just based on fear of heights and has no relationship with the actual trend behavior of the S&P.
The S&P will develop a correction in the trend and this will be a buying opportunity to join a continuation of the uptrend. The S&P shows steady, sustained and continued trend behavior for all of 2017. Those are the key features traders need to concentrate on, and the trend is well defined using a Guppy Multiple Moving Average indicator.
The long-term GMMA is well separated and has consistent degree of separation. That suggests that investors are very confident about the trend continuing.
The short-term GMMA is also well separated. When the index drops, traders move in very quickly as buyers and stop the index from falling further. This is a very bullish environment. The S&P index has not moved below the lower edge of the short group of moving averages at any time since 2016 November. This shows an even stronger uptrend than the S&P trend between 20012 and 2015.
The degree of separation between the long-term and the short-term GMMA has remained consistent for the past six months. That confirms trend stability and sustainability.
The strong uptrend will end sometime in the future, but there is no indication the trend will end soon. The most common end-of-uptrend patterns are:
- Head and shoulder reversal: A long-term pattern takes months to develop
- A rounding top: Also a longer-term pattern developing over several months
- Significant and sudden compression in the long-term group of averages in the Guppy Multiple Moving Averages indicator on a weekly chart
- A break below a long-term uptrend line that has been used as a support level: That has a very low probability on the S&P chart with this trend line around 130 index points below the current index value
- A blow-off top pattern: A buying climax with a dramatic increase in the index value and significantly higher volume
- A large increase in the VIX: That indicates the market is expecting a significant change in trend. This has not developed
None of those patterns are seen on the S&P index chart.
Rather, analysis of the S&P chart shows a very strong and stable uptrend with no end-of-trend patterns. However, this does not rule out the potential for a retracement and consolidation. That behavior is common in all uptrends and provides a good buying opportunity.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.