« Negative Divergence On Weekly MACD »

This is an update to the situation on the weekly chart of the S&P-500, which is our current 'Chart In Focus.' (See original posting)

The potential negative divergence on MACD, on the chart of SPX, was first highlighted five weeks ago. The sell signal had not completed itself at that point and it actually still hasn't. But, strictly speaking, it has not become defunct as yet, as well.

Until/unless MACD makes a new high (surpasses the peak made in January), the divergence will continue and, as such, traders need to be prepared for the ramifications of the sell signal, were it to be confirmed. A confirmation will take place if/when MACD breaks below the intervening trough (see thin line drawn in MACD pane on chart).

Potentially huge sell signal on S&P-500

So, just how significant could this sell signal be, if it came to fruition?

The best guess at this point would be that a move to the lower bollinger band (weekly), which is currently at 1050, would be the primary target. That represents a 12-13% drop from current levels. Furthermore, note that such a move would barely represent a corrective move within an ongoing bullish intermediate trend. If instead, the markets are ready to make an all-out bearish reversal on that level of trend, a much larger decline, perhaps to the 900-950 range would be on the cards.

First things first, though. Let's see if the negative divergence can confirm itself, or if it will end up becoming defunct. One way or the other, we're taking on a cautious approach at this point and have provided members with a long list of both Long and Short Stock Picks.

As far as the Options Picks go, we've started to provide more advanced trades such as Put/Call Backspreads and Short Christmas Trees with Puts/Calls, in order to be able to pull off a decent profit if the underlying stock moves in the direction we anticipate, and to get close to breaking even, in the event that it goes the other way.

Sincerely,

Asher Pinto

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