SPX Weekly Chart Overbot Negative Divergence M Top Pattern

Two weeks ago we saw the higher high in price print with the negative divergence (red lines) plain as day forecasting a spank down.  Price has moved lower for two weeks in a row since that top. So this week we see if the down move continues as would be expected. Note the green circles that show when price was under the 50-week MA. In 2010, this caused Chairman Bernanke to react with QE2 and in 2011 this behavior caused Bernanke to act with Operation Twist, in concert with Draghi (ECB) offering the LTRO 1 and 2 quantitative easing programs. Note how price came down to the 50 MA this summer but hints and talk of more stimulus from the Fed and the ECB has provided the market buoyancy for the last three months.  On Thursday, Draghi had better deliver the goods, if not, the negative divergence in place should easily continue to spank price downwards to test the 20-week MA.

This is another chart that places into question why Bernanke and/or Draghi would act. Markets are not in the same place as the previous times that triggered quantitative easing. Watch the 20 and 50 MA cross, which is always important for any stock you own, but on the chart above, when the 20 stabbed down thru the 50 the cetnral banksters could not act fast enough to save the day and you see the 20 MA returning to the top side of the 50 MA to keep the bulls happy. An M Top pattern has also formed in 2012 with the final down leg beginning two weeks ago, should the pattern play out. Projection is lower prices moving forward. Using this chart as a guide, the Fed should not act with QE3 until price at least falls under the 20 MA (1363) and more likely under the 50 MA at 1320-ish, which is about 80 handles lower. 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.