S&P Triple MACD Divergence To Short!
The more I look at the major indices, the more bearish I become. I keep finding so many reasons why the market is about to sell off. Not too many people are bearish now which is what I like. Whenever everyone agrees with me, I know I am in trouble because that means the trade is obvious, everyone is in agreement and that is when I get killed! We all can't make money..Remember only 10% of traders in the market make all the money over time while the other 90% are usually wrong. So I am happy to see that I am in the minority for the most part with my bearish view.
If you look at the above chart, you will see a 6 month daily S&P chart. Notice how we now have a triple MACD bearish divergence sell signal. The S&P made 3 higher highs while the MACD indicator made lower highs. I love triple divergences and this one coincides with so many other reasons why I am bearish which you all should already be aware of if you have been following my posts.
Nobody knows what will happen in the weeks and months to come...all we can do is try to make the best decision we can based on tools that we believe have some degree of forecasting value. I may be wrong about my outlook on the market, but at least I am very clear as to what I am doing and I know exactly where to get out if I am wrong. I am bearish and looking to play this market from the short side.
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6 comments:
Excellent
Great blog Kevin.
Regarding the debate on bullish or bearish sentiment for the S&P 500, the divergence between the index and the underlying technicals is becoming unsettling.
As you pointed out on the S&P chart, each time there is a negative MACD crossover, which indicates that a recent upward trend has come to an end, a new higher high has been formed.
As uncomfortable as I am with the divergence discussed, as long as higher highs are being formed, I'm going to side with the bulls and play out the upward trend. As soon as there is a negative MACD crossover and a corresponding lower high formed, it will be time to change allegiance and side with the bears.
Hi Dary,
Thanks for the compliment about my blog..
Let me make something clear. I never follow the MACD crossover signals because they are meaningless. The market goes up for a few says and the MACD will follow. The market goes down for a few days and soon the MACD will follow and cross down..That's useless to me. But here we have a triple divergence taking place.. I'm not using the MACD just because it crossed lower, I'm using the MACD because this is a triple divergence which is taking place at a time when I see other indicators giving bearish readings. Such as the nasdaq did not make a higher high and is now breaking it's 50 day average confirming a double top. For the past few years, the market has topped out around January. The nasdaq is also at the top of a large weekly channel which I spoke about a few days ago... market sentiment is high and the vix is at low levels.. I'm combining tools here and they all suggest lower prices. I think there has also been alot of insiders selling.. I'm trying to find a chart of that so I can post it here.
The nasdaq is what I want to be short, not the dow or S&P but most likely they will sell off if the nasdaq has a meaningful downmove..
Hi Kevin. I completely agree with your views on the NASDAQ as it has definitely broken out of its upward trend and looks like it is going to pull back...
How timely, just as I was typing this I got an alert from timetotrade notifying me that the NASDAQ has dropped below its 50 day moving average. I'll quickly put up the chart on my blog:
http://timetotrade.eu/blog/
The big question now is will the others follow. That I do not know.
For now it is 9pm in Brighton on a Friday evening before the Christmas break. Time to wrap up and join some friends for a pint. Best wishes for the New Year.
I did a post on this very subject earlier this week using a different aspect (weekly charts and 90 EMA) - came to more or less the same conclusion as you did.
Like I said on Mike's comments, it depends on your timeframe. If you were short today or yesterday, jolly good show! If not, the odds are against you for a couple of days. Three down days in a row is a short-term long signal for the index.
There is no divergence on the weekly or monthly charts.
On a different timeframe ... you don't need a trendline for this index, since August you can use the 12 and 26 ema for support. Each penetration of the 12 has led to a bounce of the 26. A high is made, followed by a week to two weeks of sideways to down, and then another high.
I would have to see a close below the 26 ema to reconsider my bullish stance.
YMMV. That's why there's a market ...
Oh, BTW, MACD crosses work GREAT on Natural Gas futures.
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