Negative Divergences Abound on the Hourly Charts

The hourly chart of the S&P-500 is showing several potential negative divergences on RSI and MACD. Will these potential signals get confirmed and lead to a small sell-off? Or will the bulls find a way to nullify these signals and carry on their merry way?

If the negative divergences do end up being confirmed, a move to the 752-766 area might be possible, although we'll have to use the momentum indicators as well as other levels on the daily charts in order to arrive at a more solid target.

S&P-500 hourly chart showing negative divergences on RSI and MACD

Hourly Chart of S&P-500

The markets have had a great start to the day. Many are showing gains of greater than 3%. Will the gains hold? You may want to take a look at a few developments on the hourly chart of the S&P-500...

The bullish signs (but):

A potential positive divergence on MACD, which we'd first shown you a couple of days ago. The big test comes today, however. We've extended a line from the middle peak of the divergence; now, MACD has to move and stay above the "confirmation line" in order to complete the positive divergence. If MACD is not above that line, the positive divergence has to be seen as incomplete or even as having failed.

RSI has moved above its centerline. However, if you notice, that has been a reason to sell in the recent past. As long as RSI stays above its centerline, the bulls will be in charge of the short-term trend. If it falls below, we could see the beginning of the next downwards leg.

The bearish signs:

The index has smashed up against the upper bollinger band on the hourly chart. That band is flat to slightly rising at the moment. It needs to start to rise sharply or else the bounce will fail.

Final Comments:

So, there are a few countervailing factors and traders will have to weigh them against each other. The lack of a final selling climax does worry a few traders; we are amongst that list. A handful of analysts have claimed that a selling climax is not necessary and that the steady drip of the past several weeks can be seen as a process of capitulation (that is complete). They may be right. Who knows? We'll soon find out.

And, for what it's worth, Mark Haines (CNBC show host) has said several times this morning "this is the bottom." Okay!

Hourly SPX showing positive divergence on MACD

Updated on Friday, March 6, 2009 at 05:17PM by Asher Pinto

We'd consider closing off or trimming short stock positions and trimming bearish legs of options volatility positions, at this point.

No strong buy signals exist, so long positions in stocks could still be considered rather risky, but if the potential positive divergence on MACD on the hourly chart of the S&P-500 (SPX), below, is correct, a short-term pop is quite possible. A fairly quick move to the upper hourly bollinger band at 720 would be a good possibility, if the positive divergence is confirmed.

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