SPX S&P 500 2-Hour Chart; Overbot; Rising Wedge; Negative Divergence in Play; Distribution

The SPX was expected to top-out yesterday but those euphoric determined bulls keep stretching-out the game. We can look at the SPX 2-hour to see how it is progressing; it should only be picking and choosing the top-tick number right now but we can pick apart the chart.

Use this chart with the one from Sunday. The chart indicators are all in negative divergence over the multi-day and week period but focus on the last momentum spurt. Charts tell you the direction ahead but they can only price in all information known up to the second. If news hits the wires, charts have to reprice the news, good or bad. The years started with the downdraft but typically new money is put to work to begin the year so it wasn't long before the dip-buyers enter in force. President-elect Biden promises fiscal stimulus for as far as the eye can see with money, like manna, falling from heaven each day and the Federal Reserve running its printing presses 24/7. Thus, the Biden Orgy Rally is created to begin the year.

The dark maroon lines show prices making higher highs. Looking at the chart indicators, all are long and strong (green lines) wanting more highs in price after any pullback would occur, however, the stochastics roll over with negative divergence and are overbot agreeable to a pullback. Negative divergence is the price moving higher and higher but ALL the chart indicators are sloping lower. The neggie d tells you a spankdown is coming and price has topped-out. The reverse is true for positive divergence when price is dropping lower and lower but ALL the chart indicators slope higher. The possie d tells you that a rocket launch rally is about to begin.

So a subtle move lower is expected at the first red arrow due to the stochastics, and it occurs, that was softness on Friday, but, due to the long and strong indicators that still have fuel, price comes back up and ends the day higher. This is at the second arrow. Price is a matching or higher high so the indicators can be assessed to see if they are all neggie d to call the top (follow that skinny purple line down). You see that all the indicators are neggie d except for the MACD that is a bit higher (see the chart from Sunday). That tells you price will be smacked lower again but the MACD still has fuel and will want to come back up one more time for a matching or higher high. Thus, a top is expected yesterday when price comes back up to 3825-ish and the MACD goes neggie d.

Monday begins as expected with softness, then price receives buoyancy, so at this point you are telling yourself that price will come up to 3825 which is great since you can short it hard. Alas, the candlestick three-back from the right edge shows how price was climbing but then stalled. That leaves us in no-man's land because there are still fumes in the MACD tank that are unresolved. In the afternoon, price comes up again and you can see the upper shadow on the red candlestick at 3819-ish but that is as far as she got before rolling over again. Well , what now? That's another nice mess you got me into, as Laurel & Hardy would say.

The bulls are trying to keep things elevated hoping for some good news to hit the wires to provide another push higher. For OpEx week each month, a Tuesday low typically leads to a Wednesday high. With the softness yesterday, the professional traders are front-running each other to line up for the scalp trade. This creates lift this morning. S&P futures are up +11. VIX 23.17. Interestingly, the VIX was higher this morning with the S&P futures 4 or 5 points higher. The Fed has its jackboots on the throat of volatility to keep it down but Uncle Vix is trying to wiggle free (volatility is being pushed lower but it is not helping push futures higher). The new moon peaks for the month at midnight going into hump day morning, the darkest overnight time of the month, and stocks tend to trade soft which is counteractive to the OpEx expectation, which is a stronger force, where stocks tend to float higher from Tuesday into Wednesday this week.

All that said, price tops out at that 3811-ish level in the afternoon. Since there are two matching highs, the indicators can be compared to see what direction they are going. All are sloping lower, neggie d, except for the money flow (tiny green line). That provides this little bit of leftover juice for price buoyancy as well as the fumes in the MACD tank. Price begins at 3800 and with futures up +10 or +11 you can see the SPX wants to immediately test that same level at 3811-ish (blue bar). Since it is a matching price high, the indicators can be compared and as long as they all remain negatively sloping, that will lock-in the universal neggie d if price hits 3811-ish and the top should be in.

The stochastics are moving sub 80 from overbot which is a negative. Watch to see if the MACD performs a negative cross (black MACD line through the purple MA line). She should be ready to roll-over after the opening pop. The brown circles show five major distribution days over the last 15 days. This is the smart money handing off shares to the dumb money; the bag-holdin' sucka's. Every top needs sucker's. Check to see if you entered or added to a long position on any of those distribution days shown by the brown circle. You did Sonny or Girly? Well, congratulations, you are a sucka. If you are long the market, get yourself out before you get hurt. 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.