Kevin Lane is one of the founding partners of Fusion Analytics, and is the firm’s director of Quantitative Research. He is the main architect for developing their proprietary stock selection models and trading algorithms. Prior to joining Fusion Analytics, Mr. Lane enjoyed success as the Chief Market Strategist for several sell side institutional brokerage firms. In those capacities he oversaw the firms’ research departments. He produced a broad range of widely followed institutional research publications ranging from industry specific notes to quantitative/fundamental reports on individual stocks. His buy side clientele consisted of many of the nations top money managers and hedge fund managers. Mr. Lane is a member of the Market Technicians Association.
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S&P 500 – Daily Chart through 5/12/09
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As seen above, the S&P 500 is still in an up sloping price channel (red lines) and also above near term price support (green line) at 875 level. As long as price stay above this level any sell-off should be contained and shallow. Additionally this area is also significant because it is the convergence of a secondary up trend line (purple dotted line) and price support. If we violate this level a deeper retesting sequence would take place.
The indicator slice below the above chart is a 21-day Rate of Change (ROC). This ROC indicator looks at the rate at which prices are rising or falling or stated another way whether price momentum is accelerating or decelerating. As observed in the chart above even though prices have risen they have not risen at the same rate as which they did to start the rally. This divergence between price and momentum can typically be a warning sign that a near-term trend change may be taking place.
While these and other momentum indicators can be leading indicators at times they can also be coincident in many cases as well so we would need to see more evidence that not only upward price acceleration deteriorated but also that it was shift and re-accelerating downward. Confirmation of this would only happen if we broke the aforementioned support level.
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