SPX S&P 500 Daily Chart W Pattern Negative Divergence Developing

The SPX 2-hour chart posted during Friday afternoon trading identifies the 2094 top and then price receives the negative divergence spankdown down to 2079 in the initial move off the top. The 2-hour wants to see more downside in its time frame. The daily chart is negatively diverged with the histogram, overbot stochastics and money flow (red lines), however, the MACD line is long and strong wanting to see one more price high after a pullback. The RSI is playing both sides of the street and will rise into overbot territory if the MACD keeps moving higher but if the MACD rolls over the RSI should follow lower.

Thus, marrying the 2-hour and daily charts, weakness would be expected on Monday to satisfy the 2-hour chart, however, after price moves down to one of the lower support levels, a bounce should occur to satisfy the MACD on the daily chart above and bring the SPX back up to 2094-ish. The bears would be better off to see this happen anyway since there is a gap fill needed at 2096-ish and price fell a couple points short of filling this gap. The gap fill would button-up the top side and create an open door lower for stocks at least from a gap fill perspective.

The bullish W pattern was previously pointed out as it occurred. A W is a powerful stock chart pattern and gains power the more it is below the 50 and 200-day MA's which is the case above. The base of the W is 1880 and breakout top level at 1990. Thus, adding 110 points to the break out targets 2100 and at the 2094 high last Friday price is close enough for government work. Price may come up for the gap fill at 2096 which would also firmly satisfy the W pattern.

The price action has a rising wedge vibe as the thin black lines show; a bearish pattern. Price will need to back kiss the 200-day MA at 2062, 20-day MA at 2034 and rising and 50-day MA at 1980 and slightly rising at some point forward. New money typically comes into the market when a new month begins so bulls typically have a slight edge the first few days of the month. October was a big up move which may have stole some of the expected early month strength.

The ADX shows that the last strong trend for the price action was when stocks were tumbling lower in late August and September (ADX above 25). The ADX in late September early October told you the bears do not have the juice since the ADX had lost its strong trend status. The bears needed the ADX to be above 40 to prove that the stock market would crash lower; it did not occur. Interestingly, with the obscene run higher in stocks during October the ADX is only at 23. After all that central banker money printing and stock market goosing during October, that spike higher in stocks is NOT a strong trend higher which is very surprising considering how robust the move is. If the ADX moves above 25 and 30 and higher, the SPX will be headed to 2130. If the ADX stays under 25, the bulls got nothing and stocks will roll over to the downside.

Summing up the wind-bag discussion above and sprinkling some magic dust on the entire analysis, the guess is that stocks will trade soft to begin the week to satisfy the 2-hour chart but should recover into mid-week because of the long and strong MACD on the daily chart above. When price recovers higher the MACD should turn neggie d and that will lock in more sustainable downside ahead in the daily time frame. The chart indicates potential for a lot of sideways slop through 2062-2094 to begin the week. Reference the previous SPX S/R missive where the 2058-2062 level is a serious support gauntlet so this level may act as a magnet for price. 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.

Note Added 5:04 PM EST: The bulls came to play today. The daily chart wanted higher highs as explained above but the thought would be that it would occur Tuesday or Wednesday rather than out of the gate on Monday (today). The MACD line remains long and strong and the RSI is now squeezing out a slightly higher high likely wanting to move up above 70 into overbot territory so the expectation remains for another higher high after any pull back occurs. It is surprising that price did not come down today and then create the move higher. Shorts are running for their lives and the bulls are tripping over each other willing to buy stocks at any price. The SPX 2-hour chart remains negatively diverged with the higher high in price so a roll over to the downside would be expected in the 2-hour time frame. it is a surprise to see the SPX move strongly higher today with the 2-hour all set up with universal negative divergence; this never happens, it is as rare as hen's teeth. Something odd is going on under the surface. Fed Chair Yellen is probably in the basement of the Eccles Building running a printing press herself. The 2099-2103 level is a formidable resistance area and price poked above, therefore, 2110 is targeted, if that gives way, 2118 is next. If price retreats, then 2091-2093 support is targeted.