« Major Sell Signal Complete: Negative Divergence on Weekly MACD »

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

Just over a month ago, it had looked like the negative divergence on MACD on the weekly chart of SPX, may have been on the verge of becoming defunct. After a stern decline over the intervening period, the strong sell signal has finally completed itself, and this fact does not bode well for the bulls over the intermediate- to major-term, as long as the index remains below its 20-week moving average (1133).

Potentially huge sell signal on S&P-500

So, just how significant is this sell signal?

Firstly, note that this is not a sell signal on a low level of trend. Negative divergences on MACD are considered to be very strong sell signals; they are much more significant than negative divergences on RSI. So when a signal of that magnitude is seen on the weekly charts, which showcase the intermediate level of trend, it is considered a signal that affected the intermediate trend, as well as perhaps on the major trend. In a nutshell, the negative divergence on MACD on the weekly chart is seen as signalling that the intermediate trend is bearish and that a major trend correction is taking place.

Our initial target for the move that followed the sell signal was 1050 but that target has actually already been reached, early in the past week. With the initial target's already having been met and the sell signal's just having been confirmed, a much lower target is obviously now on the cards (assuming that the sell signal does not fail, in the interim). Since the move from the highs is now seen as a correction on the level of the major trend, a reading of the Fibonacci retracement levels is useful. The 50% and 62% Fibonacci retracement levels of the move from the March '09 lows to the Apr '10 highs, which is assumed to be a major trend move, lie at 945 and 880, respectively.

As such, we'll use the 880-945 area as a target for this move. Now, note that if the index breaks above its 20wMA at 1033, the sell signal featured in this piece will come in doubt and the aforementioned target will be moot.

Sincerely,

Asher Pinto

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Comments

[sharetipsinfo]

Hi,Nice blog!!

[Jon]

Informative article.