I saw the bearish divergence on the daily S&P 500 graph (screenshot attached).
This says to me we are going to test the March bottom.
Or may be I read the indicators in the wrong way?
I will be happy to hear the opinion of other traders.
Sorry for my English, it's not my native language :)
Thanks in advance
-- Vadim J
-- Vadim J
Hi Vadim.
ReplyDeleteI am not expert - in fact, am novice investor, but I do not think the divergence you identified means that the major indices will re-test March lows. The reason I think March low was "special" is because of it's extreme nature and price pattern since then. Broad recognition of the unique buying opportunities in early March, in this viewpoint, caused such high-volume buying among competitive money managers, banks, funds, etc., that perhaps the volume reached a kind of ceiling and expectation of recovery did not justify selling yet beyond that seen in dips April and May. Since ambiguity in the aftermath of crisis inhibits risky behaviour, the same money managers who were afraid of being left behind on buying will be afraid of appearing foolish on premature selling. As just one opinion, I think it will take either a punctuated negative event or cluster of more depressing events, OR, a greater groundswell of greed and "itchiness" among major traders to cause the next downslide. If the lines in lower panels are made just a bit shorter to eliminate early March extremes, picture doesn't look so bad - except big dip late May due to several factors including GM bankruptcy, effect on auto parts and jobs, and price dilutions as banks issue equity to re-capitalize. Among other factors. But I think it is wise to be wary of the result of the general "feeling" that prices have come up too much, including because people have a short-term perspective. The U.S. tech sector may push prices up in June and short summer is when annual activity is more concentrated for some industries. Last year, of course, many markets rose with oil until July 2-7, then began decline. Again, Just one inexperienced person's view, and I would defer to Alex and Kerry's and senior Spiker's viewpoints.
A return to severe March lows would, in my opinion, be severely damning as a response to the U.S. administrations' as well as the US Treasury's policies and procedures in the past 15 months. Also a permanent indictment of the market regulatory authorites and laws governing US markets.
Yes, the daily MACD is drawing its second divergence. The first one was in May.
ReplyDeleteThese patterns on the short time frame means that the SP500 is expected to pullback to its sweet zone (EMA 13-EMA22) or just below it. The main trend (weekly one) should stay unchanged according to the FI and MACD behavior.
Moreover, you will note that many short term divergences have been appearing for weeks on several indices and ETF but until now we just had very shallow pullbacks or nothing at all. In addition to that, the few divergences of the FI 13 weeks (so on the long time frame) of ETF such as DBB didn’t lead to the expected pullbacks.
However, there is a technical detail which drew my attention. On the daily time frame, the MACD histogram while above zero is lower and lower as prices go higher. You can notice this phenomenon on IVV (SP500) and several other ones.
The optimism is very strong. The more the media point out that the economic growth is about to come back, the higher the markets and the higher the markets, the more the media talks about the end of the crisis: both media and markets feed each other in what seems to be an endless loop.
Valdimir,
ReplyDeleteI'm with you! I'm a big fan of MACD-H divergence and that coupled with a declining 200 SMA leads me to think that we've come to the point where we pull back. The SPX is notorious for false breakouts and I think last week might have been one. Figuring out how far down we go is hard--no one really knows. I like Fib ratios for this work, so I guess we trade back to around the 850-820 area, probably in a slow, summer grind. The key, I think, is the financials. Profit taking will happen soon--note that some of the banks are starting to look shaky.
Grant
Grant is very enthusiastic :). I hope so much to have a DEEP pullback instead of watching all these divergences leading nowhere but to the overbought areas.
ReplyDeleteHallo Vadim,
ReplyDeleteBesides the S&P500 I have also noticed bearish divergence in the DowJones, NasdaqComposite, NYSEcomposite. Also in the DAX and the CAC40. On a weekly basis the uptrend (macd19,39,9) seems intact. This was to be expected after the big bearrally. Because the situation is so unique what can be expected? I think we will have a set back to a lower level in a graduated mode. So I am very cautious nowadays...
Very Nice Call! Looking back 4 days later the high was put in resultin in a 9% pull back...Now it appears that the rally is back on...but I bet we see some sharp choppiness ahead...
ReplyDelete