Some readers enjoy seeing my “color charts” of the S&P 500 and here is a mid-week “Color Bar” update on the S&P 500 Daily Chart structure.
The color of the bars is derived from an average true range function of the most recent swing high (about 935). Subtract 2.5 times the current ATR to ‘flip’ the color from green to red, or officially confirming (locking in) a swing up and beginning an official swing down. This is an alternate way to define price ’swings’ as opposed to noting absolute swing highs and lows.
The yellow bars are simply ‘warning signs’ hinting that we could be getting a color reversal soon.
In this case, the red bars will flip should the S&P 500 hit the 875 level, which would be the official “volatility” adjusted beginning of a new downswing.
This formula was originally published by Wells Wilder and adapted by LBR Group into TradeStation functionality. The 3/10 Oscillator was brought to the public’s attention by Linda Raschke.
Notice also that the 875 level roughly coincides with the rising 20 week EMA, which if broken, would set-up a sudden ‘magnet trade’ down to test support at the rising 50 day EMA. If the EMA support at 865 is broken, then we’ll have to turn to our Fibonacci retracements to find possible support levels.
Beyond the color bars, notice the persistent negative momentum divergence that has formed with price. That’s bad news for the bulls, but it’s bad news the bulls have been shrugging off for some time – bulls have been wildly resilient in this recent retracement swing up.
Right now, the color bar study is showing caution for the bulls, and the next red bar will appear if the S&P 500 breaks beneath 875. Let’s continue to watch that level closely.
Corey Rosenbloom, CMT
Afraid to Trade.com
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