SPX S&P 500 2-Hour Chart; Overbot; Rising Wedge; Negative Divergence Developing

The previous SPX daily chart wants to see further highs with the rally but nothing goes up in a straight line so there should be pauses to consolidate the gains. The SPX 2-hour chart is starting to top-out with overbot RSI and stochastics, a rising wedge (bearish), and negative divergence developing.

As price makes the new highs, in this 2-hour timeframe, the histogram and stoch's are neggie d so that is enough, along with the oversold conditions and rising wedge, to start today off soggy with a spankdown. However, if you follow the skinny vertical line down to the indicators, you see that when price made the top at the end of yesterday's session, the RSI and MACD, and even money flow, were still long and strong wanting to see more highs in price.

Therefore, price recovers for the current 2-hour candlestick. It is a bit goofy the way Stockcharts identifies the 2-hour increments since a new candlestick starts at 9:30 AM EST, then 10 AM, then 12 PM noon, then 2 PM. Thus, on the righthand side, you see the initial 9:30 AM candlestick, and the current one is the 10 AM candlestick and this will run until 12 noon when a new candlestick will appear.

The expectation would be for price to come back up to the high yesterday since the RSI and MACD were showing that they still had a little bit of bull fuel in their tanks. When price comes back up, check the indicators. As long as the indicators are all below the red lines in the right margin, that will be negative divergence across all the indicators and you can call the top in price, in this 2-hour time frame. 

Remember, the daily time frame wants more highs for the stock market so the 2-hour is telling you that a day or two pullback is ready to begin probably this afternoon but price will likely recover in the days ahead due to the daily chart wanting more price highs. Simply watch the neggie d develop to know for sure. The top is not in until all the indicators go neggie d.

The W pattern bottom (blue) is shown on the chart which is a powerful bullish force. The top of the W is 3780 and bottom is 3575 so that is a 205 difference that targets 3985 on the upside. If you use the 3525-ish bottom for the W pattern, that targets 4035. Thus, since price breaks out above 3780, the upside target to satisfy the W would be in the 3980-4040 range.

The inverted H&S (head and shoulders) is also in play (green). The head is the 3525-ish and neckline 3780 so that is a 255 difference and targets the 4035 if price breaks above the neckline which it did. So two bullish chart patterns target 4K-ish.

The 3780-ish is uber important since it is critical S/R for price for the last few weeks and the neckline for the inverted H&S and top of the W pattern. The SPX should drop down for a back kiss of 3780-ish to show it respect. This may be what is on tap once price tops out in this 2-hour time frame probably today.

If a day-trader, you would watch the 2-hour and ditch your longs at the top and bring on shorts, and then in a day or three when price bottoms in the 2-hour with positive divergence, go long again. The swing and short-term traders may want to wait-out the coming lull since they are comfortable knowing that the SPX daily chart remains long and strong. Choose your poison. 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 10:36 AM: During the windbag commentary above, price comes back up to 3859 which is near the 3860-3863 high yesterday so that may be close enough for government work. Interesting. You can see that the MACD still has a slight upward slope but the other indicators are neggie d (if you accept the fact that the price high at 3859 is a matching high to the prior day's 3860-3863). Seeing the MACD with some fumes remaining in the tank, price will likely remain buoyant for a little bit and maybe tag the 3860-3863 range or higher. Watch the MACD; when it goes neggie d that is the top, probably within an hour or few.

Note Added 10:43 AM: Speak of the devil, there's 3863 so that is firmly a matching or higher high in price so a look at the indicators is in order and all are neggie d, except for the MACD. You know the drill. That likely means price will jog again placing a down candlestick, and then one more up candlestick that will likely be the top, when the MACD goes neggie d. Thus, the noon to 2 PM candlestick may be soggy and lower, and then the 2 PM candlestick will likely begin higher again to make the last price high. A top in the stock market is likely between 3 PM and 4 PM, and if not, and the day ends, the top is likely tomorrow morning, in this 2-hour timeframe.

Note Added 10:45 AM: SPX 3865. Wow. Check that, now 3868. You know what to watch. She's almost there but not yet. All the indicators are neggie d except for the MACD. You have to wait for the MACD to cooperate.

Note Added 10:47 AM: SPX 3870. The bulls are seeking the Vault of Heaven.

Note Added 7:32 PM EST: The top came in fast and you did not have to wait until the afternoon. The 10 AM candlestick runs higher for a new price high with the MACD still long and strong. When the 12 noon candlestick prints, however, price is a matching high to the prior candlestick but all the indicators, this time including the MACD, are negatively diverged, so the top is in and, bloop, down she goes during the afternoon. It is a neggie d spankdown as described above. SPX finishes down 29 points, -0.7%, to 3831. The HOD was 3886 at noon-ish. Price is rejected at the 50-day MA at 3859. Bulls win above 3859. Bears win below 3859. The SPX likely wants to head lower to 3780-ish to show the inverted H&S neckline, and the top of the W pattern, respect, with a back kiss. Once at 3780-ish, or in that 3780-3790 area, price will bounce, or die, and that will likely depend on if the 2-hour chart is set up with possie d.

Note Added Saturday, 10/29/22: SPX drops to 3804-3808 in the neighborhood of the 3780-3790 and then takes off vertically. The Fed may not be as aggressive on the rate hikes so stocks rally. The PCE inflation numbers are in-line so that is more reason for the Fed to slow their roll with the rate hikes so stocks rally. Dip-buyers jump in. Shorts are running for their lives covering adding more bull fuel to the orgy party. Major indexes jump +2.5% to 3.0% on Friday. A more extended move lower would have been expected in the 2-hour time frame below 3800, but the news wins the day. The SPX 2-hour chart now makes a new higher high in price so the indicators can be assessed for neggie d. All the indicators are negatively diverged so another top is at hand in the 2-hour time frame. There is a bit of momo in place due to the Friday orgy, but the 2-hour chart hints at a top in the stock market on Monday. The first couple candlesticks on Monday will tell a lot. The SPX daily chart prints a higher high in price with the indicators long and strong except for the stochastics that are neggie d and overbot. The stoch's on the daily chart will conspire with the neggie d on the 2-hour chart to send the SPX lower for a day or three. The FOMC meets next week with the decision on Wednesday. Stocks rally 80% of the time into the Fed meetings. Overall, the daily chart wants to see more highs in price on the daily basis.