SPX Ready For A Pause

The last time the SPX showed negative divergence in its daily indicators was when it reached 2860. That warning resulted in a 75-point correction which lasted about a week. On Friday, SPX made a new high at 2910 and closed at 2907.  Even more pronounced negative divergence is showing on the same indicators after Friday’s close. This is clearly another warning that we should expect another short-term correction if that divergence is not erased immediately by a continuation of Friday’s blip – a response to positive economic numbers from China and favorable bank earnings. But that does not seem likely and we should be prepared for a short-term correction of roughly the same magnitude as the last time. After that, there could be another extension of the trend, perhaps to a new all-time high .

Chart Analysis  (The charts that are shown below are courtesy of QCharts)

SPX daily chart

Last week, I mentioned that we could be making an ending diagonal.  However, with a new high on Friday, that labeling is no longer appropriate, although the market action will not change all that much since whatever the scenario, a pull-back similar to that of three weeks ago is due and should be followed by one higher short-term high before a more significant correction occurs.  

I already mentioned the similarity of the oscillator patterns. The current one is showing even more pronounced divergence than the last, but that will not necessarily bring about a larger correction. We can probably estimate that the pull-back in price will take it through the heavy trend line, fill the gap that was formed by the break-away start of the uptrend which is now concluding, and come to rest in the vicinity of the horizontal red line between 2815 and 2820 where there is good support. After a couple of day’s bounce in this area, we should be ready for the final phase of the move which started at 2346. When that phase is complete, we should be on guard for the deepest retracement since the beginning of that entire uptrend.

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Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of ...

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