Friday, October 21, 2016 7:00 AM EDT
Last July we saw SPX make new all time highs and the media celebrated the ‘mother of all buy signals’. Three months later and a 65 points (3% upside) higher we saw a top in SPX and a pull back towards the breakout area. Prices have pulled back towards the breakout area and this is an important back test as it will either confirm the breakout or it will label it as a fake one. The implications of a fake breakout are very serious as we could see SPX back towards 1900-1800 in no time. Lets take a look at some charts.
(Click on image to enlarge)
The monthly chart, as shown above, shows a glaring bearish divergence. This alone by itself does not confirm a trend reversal. The tenkan-sen is crossing below the kijun-sen indicator. This is an initial bearish sign. So in case we do really reverse lower we should expect the price to find support close to the kijun-sen currently at 2000 points, while the Chikou-Span (the light green indicator) shows that monthly support is at 2020.
(Click on image to enlarge)
The bearish divergence signals in the weekly chart are more profound and also a megaphone pattern could be at play here. It is time for the market to make a correction. First, important support comes at 2120-2130 where the previous highs and the breakout occurred. Breaking below this area will open the floodgates. Cloud support is found at 2020 and below it, we should expect to see the lower boundary of the megaphone pattern around 1800.
(Click on image to enlarge)
The importance of the 2120-2130 is huge and that is why I believe we are testing these levels. Not only will we break below the breakout area but we will also break below the blue upward sloping trend line. At the same time holding below my two EMA is not a good sign. The more we stay below them, the higher are the chances of a breakdown.
I believe the chances are in favor of pulling back and testing the Brexit lows. Time for a correction. I have short positions in equity indices and stocks. Bulls please be cautious. Better safe than sorry. Corrections are fast and sharp. Once this starts, it will be difficult to cover longs.
Disclaimer: All persons and entities contributing to ...
more
Disclaimer: All persons and entities contributing to the content on this website, and their representatives, agents, and affiliates are not providing investment or legal advice on this website. Nor are they making recommendations with respect to the advisability of investing in, purchasing or selling securities, nor are they rendering any advice on the basis of the specific investment situation of any particular person or organization. All information on this website is strictly informational and not to be construed as advocating, promoting or advertising registered or unregistered investments of any kind whatsoever. The sole purpose of the contents of this website, and any oral or written presentation in any way referring to or relating to this website, is to provide information which could possibly be used by a person in discussions with his/her/its investment advisors and/or investment decision makers.
Trading2day.com (hereinafter T2D) is not an investment firm, and its employees, agents or representatives are not acting as investment advisors. The investment information, including (without limitation) any investment suggestions, provided on this website are not a substitute for the advice of an investment advisor. T2D is not responsible for the accuracy of any information on this website or for reviewing the contents of the listings that are provided by the listees or any linked websites, and T2D is not responsible for any material or information contained in the linked websites or provided by listees. You should make your own independent investigation and evaluation of any possible investment or investment advice being considered.
The information provided on this website is not guaranteed to be correct, complete, or current. T2D makes no warranty, express or implied, about the accuracy or reliability of the information on this website or at any other website to which this site is linked. If you use any links to other websites, you do so at your own risk. T2D is not responsible for the contents or availability of any linked websites. These links are provided only as a convenience to you.
Any information that you send us in an e-mail message is not confidential or privileged, and T2D may use any information provided to us for any legal purpose.
T2D is not responsible for any loss, injury, claim, liability, or damage related to your use of this website or any website linked to this website, whether from errors or omissions in the content of our website or any other linked websites, from the website being down or from any other use of the website. Your use of the site is at your own risk. Day trading, short term trading, Options Trading, and Futures Trading are extremely risky undertakings. They generally are not appropriate for someone with limited capital, little or no trading experience, and/or low risk tolerance. Never execute a trade unless you can afford, and are prepared to, lose your entire investment. All trading operations involve serious risks, and you can lose your entire investment. Always perform your own due diligence and make informed decisions with the help of a licensed financial professional. We make no warranties or guarantees as to our accuracy, the profitability of any trades which are discussed, or any other guarantees or warranties of any kind.
less
How did you like this article? Let us know so we can better customize your reading experience.
