The Critical Levels for Equity Bulls

The past few days I’ve been showing some of the bullish charts I’m seeing after this recent period of weakness in the equity market. On Tuesday we looked at the low percentage of stocks above their 50-MA, yesterday I showed a chart of the strength in relative performance out of the High Beta ETF ($SPHB), and today I want to look at the levels the equity bulls need to keep their eye on.

Below is a simple chart of the S&P 500 ($SPX). On the top panel we have the Relative Strength Index (RSI) which has found support twice during this short-term drop at the 35 level, which is about the same level of support during the weakness in June. Ideally we would like to see support in the RSI indicator closer to 40-45 but the fact that selling didn’t take momentum into oversold territory is still bullish.

Turning our focus to the price action of the S&P we have the 20-day exponential moving average which has been acting as resistance during the pops we’ve gotten over the last few weeks – most recently yesterday. If bulls can get above the 20-EMA we could see a run to the falling trend line which would take us to about 1670 which also happens to be the lower high made in August during this short-term down trend.

Currently I think the bias favors the upside if we can get above the moving average resistance in the next few days and also stay above the 100-day MA (not shown on the chart). On the downside we have clear support at 1627-1630, if that gets taken out then the environment changes and the down trend could be protracted.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.