Trade Optimism Continues

Optimism re-surfaced on Thursday with authoritative opinions being expressed that the US-China trade talks have a good chance “for a win/win outcome”. This was undoubtedly responsible for picking up a flagging SPX and causing it to close with a new daily and weekly high.Signs of weakness were confined to breadth continuing to be less and less supportive of price, and a slight increase in the negative divergence in the daily momentum indicators.

A small congestion level which has a potential count for about a 50-point correction also formed last week, but this possibility can be eradicated by the index moving only a few points higher. We did close outside of the daily uptrend line and end of week action could be construed as a retracement toward the broken trend line; but this trend line has already been re-adjusted and will have to be again if we make a new high. Everything considered, it would take at least a daily close below 2764 before we could even hope to have a reversal of the trend.

In addition, only the faintest trace of relative weakness can be observed in the IWM at the hourly level which, like everything else mentioned above, can disappear instantly if we have a positive opening on Monday morning.

In conclusion, we’ll have to wait until next week to see if firmer signs of a rally top materialize.  

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

SPX daily chart

Let’s start by looking at the oscillators, because this is always where the first signs of a reversal appear.  At the highs, the progression toward the end of a trend is nearly always from the bottom one to the top one, and it looks as if that process has already started since the bottom oscillator (A/Ds) has already gone negative.The top two (momentum) have turned down after showing negative divergence, but have remained positive. They will have to become negative before a reversal of the trend has taken place, and the top one is normally the last one to do so.

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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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