Turnabout is Fair Play – SP500 Daily and 60min Oct 21

Oct 21, 2009: 5:39 PM CST

Well that was interesting.  I’ve been thinking that when a pullback came (if it ever came) that it would be swift and sudden.  This move down into the close is either the start of a tumult to the downside… or just one more in an ever-increasing series of failed sell signals (as mentioned in a prior post).

In any event, let’s take a look at the Daily and 60-min S&P 500 chart to see multiple divergences, overbought conditions, and a slicing through all lower frame moving averages.

I’m adding something I don’t normally do – I’m showing the standard (default) RSI (Relative Strength Index) – an overbought/oversold oscillator.

I wanted to point out the “Triple Swing” Negative momentum divergence (also known as a “Three Push” Pattern) and recent overbought readings in this classic indicator.

Beyond that, we’ve been seeing the standard negative divergences in the 3/10 MACD Oscillator.

Divergences in the 3/10 are common – that’s mainly what I use the tool to see.  Divergences – particularly multiple divergences – in the RSI are rare.

That’s not to say price is required to fall from here – it just says that odds are overwhelmingly in favor (though not guaranteed) for some sort of deeper than normal pullback, at least to the 1,040 level.  A break beneath 1,040 would target 1,000, and any break of 1,000 would almost certainly send the index back to test the 900 level over time.

There’s been a negative volume divergence also as price has continued its unyielding price rise off the July lows.

Let’s drop down inside the chart to see the 60min internal structure:

I’ve also drawn in an “Arc” formation (“Rounded Reversal,” “Scallop Top,” etc) that has peaked at the 1,100 index level (a “round number” resistance very similar to the now famous (infamous?) Dow 10,000).

Again, we see lengthy negative momentum and oscillator divergences both from the 3/10 MACD Oscillator (bottom) and the RSI oscillator – both say the same thing, but the RSI carries a stronger signal.

Swing and even position traders may find this to be an absolutely irresistible risk/reward opportunity.

Keep in mind that the 50% Fibonacci retracement of the “Bear Market” rests at 1,121, so that would be your ideal place for a stop-loss… and any move up to and beyond that level would trigger the “Stop Pop” scalping strategy to play the stops of frustrated bears should price rally back to new highs (which serves as an example of trading with “IF/THEN” statements).

This could be big – let’s watch and trade closely.  Tomorrow will be very important for more clues as to the future of the market… whether this was an isolated sell program on the close (perhaps tied to the Galleon unwinding) or something more ominous.

Subscribers to our Idealized Trades report were treated to extra analysis and intraday charting in addition to the daily summary today.  These reports have now evolved into half educational/reference and half ‘predictive,’ in taking a look at current intraday structure on different timeframes and noting opportunities for the next day or for the larger frames.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

8 Comments

8 Responses to “Turnabout is Fair Play – SP500 Daily and 60min Oct 21”

  1. Dominick Says:

    Hello Corey. Just out of curiosity, could price also find support at the 1020 and 980 price levels?

  2. blues Says:

    Ya but it seems we need a spike in DXY (USD) first, as of writing is still going down and near the very low 75.0s…

  3. Dan de Man Says:

    Lets go to 1040 and make some money on the downside. If we're really lucky we can do it in a couple days and go shopping on Saturday with the profits. LOL

  4. Bob Says:

    Whether this is “the” correction or just a pull back, will tell in time, but a correction to this rally is overdue. On a persoanl note, it sure felt like this last run up was based on emotion.

    The VIX hit rock bottom yesterday moving inversley to the equity markets; Isn't that capitulation?

    In the .SPX (daily chart) a broadening triangle is evident; note the five oscillations contained within. The lower trendline also happens point towards the 50 day Moving Average (1040) and falls just below the MA, but above the Bollinger Band. This level may be the “line in the sand” price may target.

    Good day all!

  5. Dan de Man Says:

    Man those bulls are relentless, lol

  6. the99th Says:

    Perhaps its no coincidence that the Three Push Pattern corresponds to the Elliot Wave structure. I find that the best way to count waves is via secondary indicators rather than the price action itself, or at least, you must count indicator swings as a filter to possible price counts. Pure EW is worse than useless but combined with other filters it can be a very powerful tool.

  7. Dan de Man Says:

    Man those bulls are relentless, lol

  8. the99th Says:

    Perhaps its no coincidence that the Three Push Pattern corresponds to the Elliot Wave structure. I find that the best way to count waves is via secondary indicators rather than the price action itself, or at least, you must count indicator swings as a filter to possible price counts. Pure EW is worse than useless but combined with other filters it can be a very powerful tool.