Monday, March 2, 2015

SPX Monthly Chart Overbot Negative Divergence

The monthly charts receive new prints last Friday as February ends. Today is the first trading day of March so a new candlestick will begin and remain active for the next 22 trading days until EOM and EOQ1 on Tuesday, 3/31/15. Keystone has been highlighting the monthly charts over the last few months to identify where the multi-year top will potentially print. The red lines show the rising wedge pattern, overbot conditions and negative divergence across all indicators that occurred with the higher price high in December, thus, a smack down occurs in January.

There was no reason for price to come back up since the neggie d with the indicators shows that the rally is completely exhausted. Six years is a long way for this bloated bull to run. But price does come back up for a higher high constantly fueled by central banker happy talk. The maroon lines show price with a higher high and the indicators remaining universally negatively diverged so a spank down is anticipated for March. Note the MACD cross is positive so the market bears need this cross to turn negative asap. If the MACD cross remains positive the bear case will not arrive and stocks will remain at elevated levels. Price is extended far above the moving averages requiring a mean reversion.

The green lines for the indicators show how the long and strong profiles kept sending prices higher. Negative divergence was appearing last year and created the strong smack down in October but back then the RSI and MACD were long and strong wanting to see one more high in price, which occurred in December and that ushered in the neggie d and the retreat. The chart is very negative sans the MACD positive cross.

In January, price dropped into the same range as the October sell off but note that the selling volume is not larger than the buying volume in October. The central bankers came out with guns blazing in October to prevent a market crash so it is understandable that the volume sky rocketed with the easy money flooding into markets in waves. Since volume was not robust to the downside in January, the bulls puffed out their chests and ran stocks higher in February. Note, however, with that record-setting February rally, the major indexes up +6% and higher, that buying volume could not surpass January's selling volume. This helps the bear case for March.

The chart says a multi-year top is in place for the stock market and a high print would be expected anytime say now through May with sooner having more clout than later. Cash is a position; it would be prudent to exit any long stock play that you are not willing to hold for a few years time. If you are a die-hard bull, and addicted to the six-year rally, at least make sure your current long plays are liquid with millions of shares traded daily not thousands. That way, if the hammer is lowered, you will at least be able to get out that tiny exit door as everyone else jams their way through. Projection is sideways to sideways lower going forward. In addition, as pointed out several times, the long term SPX monthly displays an ominous rising wedge pattern and the collapses from rising wedges can be quite dramatic. 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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