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“The Status Quo is Saved” Rally in the Stock Market

“We can anticipate another rally once the political charade plays out, but what happens after that?

We can safely predict the inevitable budget-debt ceiling deal will spark yet another “the Status Quo is saved” rally in the stock market. But what happens after that?

Here is a three-year chart of the S&P 500 (SPX). The potential for another spike higher is reflected in the rising stochastics.

But overall, the chart is showing weakness and the potential for a serious decline. The negatives include:

1. A number of indicators (MACD and relative strength) are negatively divergent, i.e. they are declining as price moves higher

2. The 20-week moving average (MA) is stretched above the 50-week MA (i.e. the market has reached a point where the 20-week tends to converge with the 50-week MA)

3. The upper Bollinger band is flattening, showing loss of momentum.

Some similarities with 2011 are discernible. In 2011, a multi-month topping process traced out a classic head-and-shoulders pattern…..”

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