Friday, August 22, 2014

SPX 2-Hour Chart Overbot Rising Wedge Negative Divergence

We have been waiting for the neggie d to form on the 2-hour this week and it is comically like waiting for Godot. The positive news bites such as Putin happy talk keep creating upside spurts and once an indicator produces a higher high to become long and strong, another higher high in price is needed. Well, Godot finally arrived. The thick red lines show universal negative divergence across all indicators so a smack down in price is desired. RSI, stochastics and money flow are all overbot and the red rising wedge pattern is playing out to its apex both bearish indications. The SPX should roll over from here and receive a neggie d spank down, however, considering that Fed Chair Yellen speaks at 10 AM EST and ECB President Draghi at 2:30 PM, the markets may react violently either way. Traders are very optimistic this week and expect Yellen to flap dovish wings and also Draghi to hint at stimulus. All traders care about is central banker easy money so the stock market can move higher forever.

During the selloff move in July into August, note how the ADX ran above the mid to high 30's and above 40 signaling a very strong downward trend in place for the stock market. The Putin happy talk created the exact bottom at 1905, helped by the positive divergence (green lines) and oversold conditions and falling wedge, but the money flow wanted to see further weakness. So after this straight vertical upside two-week rally orgy, note that the ADX is 30 not signaling the trend strength that the down move showed. Market bulls need to see the ADX hitting 35 and 40 and higher to prove the upside trend is strong.

The expectation is for stocks to roll over from the neggie d. Price may play around at these new historic highs since Yellen's talk begins only one-half hour after the opening bell only a couple hours away. Traders will remain on pins and needles into Draghi's words in the afternoon. The last hour of trading to end the week, after Yellen's and Draghi's dovishness, or lack thereof, is known, may be quite a ride. Perhaps Putin happy talk will turn to sad talk since futures fell about one hour ago when news hit that 20 Russian convoy trucks are entering Ukraine territory and may be accompanied by pro-Russian separatists. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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