Monday, April 18, 2016

SPX S&P 500 Daily Chart Overbot Rising Wedge Negative Divergence Upper Band Violation

The SPX daily chart is setting up negatively with the rising wedge and overbot stochastics. The red lines show negative divergence across all indicators that want price to receive a smack down. The green line for the RSI shows long and strong juice remaining in the very near term so a jog move may be needed (one day down one day up then down) but overall the chart wants to see a price drop begin at anytime.

The collapses out of rising wedges can be quite dramatic. The pink arrows show the tight standard deviation band squeezes. In February, price was squeezed out lower hitting the lower band then recoiling higher to the upper band in late February. Right now, price is squeezed out higher, and hits the upper band. Will it perform the mirror image fractal of February? If so, price would now recoil lower towards the lower band at 2025. At a minimum, the middle band at 2059 is in play since the upper band has been violated.

The ADX is at 18 which is quite surprising. An ADX above 25-ish says a downward move in price is in a strong downtrend, or, an upward move in price is in a strong uptrend. As the stock market tanked to begin the year falling into the 2/11/16 bottom, note that the ADX was rocking and rolling between 30 and 40. This firmly verified that the downward move in price was a strong trend lower. Then the rally began and the ADX petered out and falls under 25-ish. The bears knew in late February that the strong down move in the stock market was over.

It is surprising that the ADX is not above 30 right now. For the robust move higher in stocks over the last two months and all the euphoria, you would think it is a strong trend higher. Nope. The ADX is even at a lower value than two weeks ago when April started. The big rally in stocks is not a strong uptrend. The volume today is on the low side so there is no conviction for bulls to take stocks higher. Much of the move higher in stocks is frustrated shorts covering creating bull fuel. The catalyst is the central bankers always anxious to pump stocks with promises of easy money.

The low CPC put/call from last week has hinted that a market top is at hand. This gels with the chart above, and the previous 2-hour chart, that are agreeable for a pull back to begin. Watch the RSI to see if the bulls can keep the rally alive for another day or two. ECB President Draghi plans to fire a money bazooka on Thursday morning promising more easy money. The central bankers are powerful and may paint the tape green. If the chart negativity plays out as described, perhaps Draghi drops his money bazooka on the floor in a couple days and it is exposed as shooting blanks.

The SPX stopped at the 2093-2094 resistance. A move higher will take price to 2099 next. 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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