Stocks Nearing an Important Top? – 08/12/22

Stocks in the second half of August can sometimes  form important tops.  Two prominent examples  are the peaks US stocks made in August 1929 and August 1987.  The subsequent declines were rapid and deep.  Evidence is  mounting that an important stock market  top could be forming  in August 2022. 

The weekly S&P 500 (SPX) chart courtesy of BigCharts.com Illustrates the intermediate view.

The BigCharts.com- Slow Stochastic indicator is very effective in identifying turns on any  time scale. 

Both Stochastic lines are  now not only into the overbought zone that starts at 80%, but they are also above 90%. 

A case could be made that the Stochastic lines  could remain in  the overbought zone for several weeks.  However, note that in the prior instances when this occurred the SPX rise was slow as opposed to the steep rally in  March 2022. 

There’s a high probability that when the weekly Stochastic lines have a bearish crossover it could be signaling  the start of a steep decline.

The daily SPX chart courtesy of Trading View shows what happened in the 2008 bear market.

The March to May 2008 bear market rally was  first mentioned in the 07/07/22 blog “Long – Term Momentum Implies a Multi – Week Rally.  Subsequently there has been a multi-week rally.  The March to May 2008 rally was 44 – trading days adding 44 trading days to the SPX 06/17/22 bottom targets 08/22/22 as a potential rally top.

Note that the May 2008 top had an RSI bearish divergence.  Also, note where the SPX was at the May 2008 top relative to the 200-day moving average (MA).  A marginal breakthrough, then down.

Now let’s move forward  to 2022.

The daily SPX chart illustrates the 2022 decline.

The SPX is now approaching  the 200-day MA, which is also nearby.

The declining trendline connecting the January and March tops.

A Fibonacci .618 retracement of the January to June 2022 decline.

The double top made on 04/28/22 and 05/04/22.

These four factors represent what could be tremendous resistance, and the point from which the bears could mount a vicious counterattack.

Also note the RSI has reached the overbought zone, typically peaks are  made with at least one bearish divergence.

An important stock market top could be made in one or two weeks.