Saturday, April 25, 2015

SPX S&P 500 Daily Chart Moving Average Ribbon Mean Reversion Upper Band Violation Negative Divergence Rising Wedge Overbot

There is lots going on for the spaghetti chart above. First, the pink dots show the extension of the moving averages (price above the 20-day MA at 2089.56 above the 50-day MA at 2089.67 above the 100 above the 150 above the 200) where a top occurs and a mean reversion lower is required. Currently, the 20-day MA is actually a hair under the 50-day by pennies but this chart on Monday will send the 20-day above due to the price momentum late last week.

Price is tagging the upper standard deviation band which indicates a near-term top is at hand. The extreme market complacency indicated by the CPC put/call ratio at 0.76 signals a market top at any time any day forward so if price further tags the upper band at 2123 that is likely a gift for the short side with prices expected to fall perhaps dramatically.

With the new all-time record highs occurring with price on Friday, the red lines show negative divergence across all indicators in the multi-week and multi-month time frames (bearish). Over the last few days, however, the green lines for the MACD, stochastics and money flow show momentum that may permit the bulls to squeeze out one or two days more of upside juice. The stochastics are overbot.

Despite all the euphoria at the tail end of last week with the new record highs, volume could not surpass the selling volume from one week ago in the sub SPX 2104 price candlestick. Therefore, it is prudent to expect price to drop to retest this area under 2104. Note the high volume print in mid-March due to central banker pumping with price in the 2090-2115 range. The SPX returns to this level last Wednesday through Friday but none of the three days even come close to that prior volume strength. The price move higher lacks conviction.

The red lines show a rising wedge pattern which is bearish and a failure at the 2090-ish level would indicate trouble ahead for markets. Continuing the red rising wedge into the future targets August as the apex and the bulls may be able to hold on for 2 to 4 months if they can hold the 2090-ish level during the expected pending selloff.  Factoring in the above mumbo-jumbo and the low CPC put/call ratio, a bearish strategy going forward is prudent. The VIX is 12.29 showing that traders are not bringing on protection since no one expects a a market pull back to occur and that is when a pull back occurs. Get protection and bring on shorts. Ditch any longs you do not plan to hold for several years. 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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