CNBC might be saying that the selling is over, but...

You know, I rarely watch CNBC. I mean, let's be honest, probably the only thing that group is good for is, perhaps for being the preeminent contrary indicator, if you will, when it comes to calling significant turns in the markets.

But for some reason, I decided to turn on the channel a few times today, for several minutes on each occasion, just to get a feel of what the sentiment was like in the, oh let's call it the "fundamentals" crowd... Almost on every occasion, I heard what can only be described as full on cheerleading for a bounce. Several times in the last hour or two, they repeated a seemingly nonsensical claim that went along the lines of "oh, look, the Dow has bounced 20/30/40 points, off its intraday lows (when the index was down 125 points, on top of yesterday's 225-pt drop) and, since every correction over the past several months has ended fairly quickly, this one must be over - given that the indices have been able to hold the day's lows - now."

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Chart in Focus: Negative Divergence on MACD

The move to new minor (and intermediate) highs last Friday nullified a few sell signals that had cropped up in the preceding week.

As things stand now, the minor and intermediate trends will be seen as bullish, as long as the S&P-500 stays above the broken resistance level at 1010. The bears have no chance until/unless prices fall below 1010.

However, the bulls should not take things for granted. There is an interesting development on MACD that could put the cat amongst the pigeons. As the chart on the right shows, there is a potential negative divergence on the momentum indicator.

Traders will want to watch the indicator closely, over the coming sessions. If the indicator moves to a new minor high, the divergence will be moot. On the other hand, if it puts in a top below the last high and thereafter goes on to break the intervening trough, a strong sell signal will be generated, on the minor trend.

This potential sell signal has manifested itself on several of the broad market indices. We're using the S&P-500 as a proxy for the rest.

Chart in Focus: Break of 20DMA on S&P-500 (1)

The chart of S&P-500, specifically the relationship between price levels (on a closing basis) and the 20dMA on SPX, is the current "chart in focus."

This index, along with several other majors, made a bearish break of its 20dMA on Monday. That move arguably confirmed the various sell signals that we'd highlighted over the previous week or two.

And, as long as the indices remain below their 20dMAs (we'd put emphasis on the plight of the king of all indices - the S&P-500), traders will want to assume that at the very least a correction of the recent (month-long) leg of rally is taking place.

If important support levels (as described in the weekly and nightly commentary pieces in the Members Area) are broken, traders will start to look at this move as a potential correction of the intermediate trend bull move off the March lows.

Purely Technical: Aug 11th, 2009 Issue

The latest issue of the Purely Technical newsletter is available via the link below. Covered in this issue is the article "Sell Signals All Over the Place."

Purely Technical - Stock Market Newsletter

More Negative Divergences on Hourly Charts

The hourly chart of the S&P-500 moved to a slightly higher high yesterday but, as you'll see in the weekly chart (second chart below), it hit a significant level of potential resistance at the close yesterday.

The index has lost ground so far today and the hourly charts are now showing more pressing negative divergences than they were earlier in the week...

S&P-500 hourly chart, showing negative divergence on MACD

As the chart shows, the negative divergence on RSI, earlier this week, lead to a quick 30-pt drop on the index. The lower band on the hourly chart quickly came to the rescue, however, and prices rallied back towards the earlier highs.

Those highs were surpassed yesterday. The new highs on the index were not, however, accompanied by new highs on hourly MACD and, as such, we now have a glaring negative divergence on MACD; infact, if you look closely, you'll see that there are two negative divergences on MACD; the most recent one resides within a larger one.

If the potential sell signal confirms itself, we'll be looking for a move to the minor support area at 752-767, at the very least.

While the negative divergences on the hourly chart are short-term sell signals, at best, the reaction to the 20-week moving average, as seen on the weekly chart (below), is the big "Kahuna", as it were...

S&P-500 Weekly chart, showing potential resistance from 20-week Moving Average

Notice that yesterday's highs (832) coincide with the 20-week Moving Average. The index was not been able to move above its 20wMA since June of last year. If/when that level is broken (and stayed above), an intermediate/major buy confirmation signal will have been generated.

Until/unless that happens, traders will want to be on high-alert to the possibility of an abrupt bearish reversal.