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Slowing Momentum Could Pose a Threat to this Rally

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That's the bad news.  The good news is that momentum issues are more of a short-term nature than a long-term one.  Still, as traders, we need to respect them just the same.
 
First, let's take a look at the benchmark S&P 500 index on a weekly basis (think BIG picture):

SPX 6.1.13 weekly chart

The MACD couldn't be much stronger.  As S&P 500 prices have risen to new heights, so too has the weekly MACD.  That suggests that the longer-term rally hasn't ended, so keep this in mind during any short-term periods that are more bearish and frustrating.  The short-term may prove to be troublesome.  While the long-term weekly MACD looks great, that's not the case on the daily MACD.  Check out the S&P 500's daily chart and take a look at the hit the MACD has taken lately:

SPX 6.1.13

Last week saw a big spike in the Volatility Index ($VIX).  Determining where the VIX will top is a big piece of the puzzle in determining where the S&P 500 will bottom.  Take a look at this chart of the VIX and note how recent tops have marked short-term bottoms in the S&P 500:

VIX 6.1.13

I would look for a top in the VIX in the 18-19 area.  If selling really escalates and fear spikes, perhaps we'll see a test of the downtrend line closer to 21.  Over the past year, nearly every short-term bottom in the S&P 500 has occurred with a VIX somewhere in the 18-21 range.  The late December 2012 period was an anomaly as fiscal cliff talks spooked investors.  Once the VIX tops, though, I do expect another rally in equities based on a number of factors, but certainly that strong weekly MACD won't hurt.
 
I've recorded a video lesson on the MACD and would be happy to share it with anyone interested.  CLICK HERE for details.

- Tom

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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