Wednesday, August 27, 2014

SPX 2-Hour Chart Overbot Rising Wedge Negative Divergence Fibonacci Retracements

The 2-hour chart has been interesting to watch over the last week waiting for the negative divergence to develop. It was like waiting for Godot but Godot finally arrived. The red lines show the rising wedge and negative divergence that set up the Friday spank down but the down move did not have any bones to it because of central bankers at Jackson Hole promising to continue the money printing. ECB President Draghi's hinted at a stimulus announcement perhaps as early as the next meeting on Thursday, 9/4/14, creating the spike higher to begin this week. Germany's Finane Minister Schaeuble tosses a wet blanket on the trader zeal for European QE saying that Draghi's comments were "overinterpreted."

Technically, the chart continued setting up negative divergence with the maroon lines as it absorbed the Draghi joy. The indicators are all in neggie d so a spank down and lower prices is expected for the 2-hour candlesticks ahead. The move lower started yesterday so today will determine if it continues. The 1991 is a reasonable downside target in the near term. The Fib retracements show the 1967 level (38% Fib) as a downside target as long as the top remains in at this 2000-2005 level. Since price recovered 100% of the down move from 1991 to 1905, a Fibonacci extension move of 1.236 is a useful target. Applying the 1.236 extension to the 86-point drop yields an upside target at 2009-2011. Price printed an all-time high yesterday at 2005 in the neighborhood but about five points shy of the 1.236 Fib extension (sometimes this is close enough for government work). The money flow and RSI are weakening wanting to see lower lows in price. The MACD lines performed a negative cross (bearish).

The pink boxes show how the trend lower in late July and early August was a strong trend lower (ADX above 30). Note how for this complete price recovery and new market highs the ADX remains far lower than the levels for the selling move one month ago. The ADX is at 29 showing a strong trend for the upside, however, the ADX is below the high from Friday negatively diverging. Considering the rising wedges, overbot levels, neggie d and lackluster ADX, a move lower to the 1991 support is a reasonable expectation and then the action can be reassessed. Any move higher above 2005 should result in further negative divergence. 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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