SPX500’s Primary Trend is Up, the Index is Overbought in the Short-Term
Monthly Chart (Primary Trend)
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The SPX monthly chart has charted a higher trough (HT) followed by a higher peak (HP). This denotes that the SPX500's primary trend is an uptrend. With only 3 days left until the end of the month, the SPX 500 is up over 8.8% for November. This has resulted in a large blue monthly candle (candle 1). Candle 2 is a bullish reference candle i.e. it has the lowest low in at least a three-candle cluster. The candles to its left and right have higher lows. Given the limited days left in the month, it is likely that candle 1's close will be above candles 2's high (green horizontal), which will chart the next higher trough (HT) in the uptrend.
The green 5-month EMA and orange 10-month EMA have both turned up and are looking to develop angle and separation to the upside. Moreover, the SPX500's monthly RSI continues to track on the bullish side of 50 (blue rectangle). If the indicator maintains above 50, the monthly momentum will be index supportive.
Daily Chart (Overbought Condition)
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The daily RSI is above 80 (blue rectangle). A reading at or above this level is regarded as overbought and unsustainable over a longer-period. Therefore, a pause or pullback on the daily SPX500 chart whilst the RSI indicator normalises is a distinct possibility. However, any pullback on this timeframe will take place within the confines of a longer term uptrend (as per the monthly chart). As such, a potential "dip in an uptrend" scenario is potentially setting up on the SPX500 index on a daily time scale.
Russell Shor
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.
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