Quite a rally in the S&P

January 11, 2018 10:27 AM

The accelerated trend adjustment

Yet there are times when trends become so accelerated as to move beyond the previous historic Oscillator indications. As one example, the previously very orderly German Bund market crashed down through previous Oscillator support (weekly MA-41 minus 3.00-3.50) during the massive selloff attendant to the financing fears associated with reunification.

That called for creative assumption about just how much further it might proceed prior to establishing the next Oscillator threshold. At the time we used a percentage extension principle that worked very well to project that support into MA-41 minus 5.00-5.50. And of note, that same Oscillator extension worked very well as a threshold where subsequent major rallies stalled on the upside (i.e. MA-41 plus 5.00-5.50.)

And in the S&P 500 front month future, we have been sensitive to the need for this type of extension since the market pushed back up into the historic high 1999 and early 2017 levels back in early December. As such, we developed a fresh set of ‘adjusted’ weekly Oscillator thresholds that allow for the additional extension of the rally we are now seeing.

The Historic S&P 500 Oscillator Thresholds Extended table also includes a brief straightforward description of the methodology used to project these now massively extended thresholds to accommodate the likewise massively extended trend. Essentially it is a 1.75 multiplier on the old actual Oscillator thresholds based on the ratio between the historic high Oscillator levels from back in April 1999 that were essentially matched during the very upbeat reaction to U.S. tax reform promises in March 2017.

While some may quibble with such a simplistic approach, we have found it worked well in the rare similar situations which have occurred from time to time. And at least so far, it seems to be providing similarly useful guidance for the recent trend activity. It is also important to note that under more normal circumstances it is typical for the S&P 500 front month future MA-41 to increase 4 points a week in a trending market. Yet of late it has been rising 7-8 points per week, and is now rising a full 10 points per week. This is another sign of just how forceful the current uptrend has become.

S&P 500 evolutionary trend view

March S&P 500 future saw the lower Oscillator threshold rise to 2,644-49 last week, and it is up to 2,662-67 this week.  That now represents an extended lower interim support. As noted previous, the old all-time high (April 1999 & March 2017) major extended Oscillator resistance was another $30 higher. That rose to 2,682-87 last week, which made it the near term resistance from which the market escaped at the beginning of last week. It rises to 2,692-97 this week, which also conforms to the latest congestion area from the temporary holiday period stallout prior.

Once it escaped that range we began employing our ‘adjusted’ Oscillator levels, beyond historic levels from April 1999 and the rally into early March 2017. The next higher ‘adjusted’ interim Oscillator threshold last week on that basis was 2,702, which rises to 2,712 this week. The more substantial threshold was not until the 2,722-27 range the market also overran last week, rising to 2,732-37 this week.

Critically, the market held the top end of that threshold on Monday’s temporary early session reaction that was repeated Wednesday morning. In each case it had recovered by later in the session. It is also noteworthy that there is not much above that until the 2,782-92 range. That sets up a further potential near-term runaway if it holds up at no worse than 2,732-37 on any near-term setback, as it has so far this week.

Historically it may seem incredible the market would rally roughly another 45 points after being up 65 points in the first week of the year and an additional 13 points this week. These are the type of price movements that typically take at least several weeks, or even months in a slower market. Yet that is the nature of accelerated trends that cannot violate the next technical threshold in the opposite direction (i.e. that 2,737-32 range as elevated Oscillator support this week.) This is especially so once a bit of a ‘reflexive’ euphoric psychology sets in… as it seems to have done in U.S. equities.

Thanks for your interest.

Rohr International’s active analysis of how short-term activity fits in with the intermediate- and long-term trend indications 

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About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.