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S&P 500 STALLS AT 200-DAY AVERAGE...The two month rally in stocks has run into a couple of formidable resistance lines while in an overbought condition. Last week's message showed the S&P 500 nearing a test of its 200-day moving average and a falling trendline drawn over its January/March peaks. Chart 1 shows the SPX starting to pull back after touching both lines (see red and blue arrows). In addition, its 14-day RSI line in the upper box has moved into overbought territory over 70. That combination suggests that the summer rally may have run its course and may be peaking. The flat black lines also show the SPX having retraced just over 50% of its first half losses. That increases the odds that the rally has run into serious overhead resistance.
Caution is advised, at all times. This trader will continue to scalp ES, day trade some stocks, and even swing trade some low risk ETFs.STOCK INDEXES IN CRITICAL TEST... What stocks do from here is very important from a technical standpoint, and should help determine if the summer rally is just a bear market bounce or something more lasting. This is precisely where the rally in stocks should fail if the major downtrend is still intact. A 50% rebound up to 200-day moving averages and a major downtrend line represents a major test of the downtrend that started earlier in the year. Any serious pullback from current levels would suggest that the summer rally has probably run its course and would also keep the market's major downtrend intact. That also warrants a more cautious view on stocks from current levels.