US Equities remain under pressure.

For some reason yesterday's post seems to have disappeared.So I apologise if you think you  have seen something similar before.

I am attaching a couple of charts from Excel, the first one is the daily close 2000 - 2011. The second chart is an indicator I follow for a system. It is the 14 day RSI of the 50 day SMA (Yep a derivative of a derivative).

I want to draw your attention to something occurring on these, which is reminiscent to three prior occurances over the past 10 years. These are highlighted by the round yellow circles, it is a divergence between the indicator and the price at extremes. In all three cases a decent correction ensued in the subsequent weeks.

I am of course aware that three occurrence do not mean a fourth will happen, however I think it is something to be aware of, particularly when considered together with some weekly signals on the SP500 (See chart below). This chart shows a strong bearish candle last week 'Dark Cloud Cover', a close relative of the engulfing candle, together with clear divergence on momentum.

What makes this interesting is that the charts for the prior occasions displayed strong similarities (See below), that is a strong reversal candle pattern on the weekly, and clear momentum divergence.

SP500 WEEKLY 2002

 

 

SP500 WEEKLY EARLY 2005

SP500 WEEKLY LATE 2005

As the week closes, it looks as though we are heading into a weak close, after a few attempts to regain some poise have failed. - The key support area on the chart is around 1328. If it can hold this area, then the chance of further highs remain, or at worst continued sideways action, however a sustained break of this area, could see several weeks of correction at least possibly back to or below March's levels.

US Equities under pressure. SP500 in more trouble

The following top charts show the SP500 daily 2000 - 2011, with the lower of the top 2 charts showing the 14 Day RSI of the 50 week daily Simple Moving Average (I know its a derivative of a derivative, but its one I have found incredibly powerful over the years).

Since 2000 this has worked quite well as non-confirmation signal on 3 occasions, highlighted by the yellow circles (twice at highs and once at a low). Statistically this is not of course significant, however, I can not help thinking that this is a potential big warning flag of at minimum a big correction and possibly a more significant market turn.

The significance of this is all the greater when seen in context of the weekly price action (Bottom Chart), which last week produced a strong bearish candle 'Dark Cloud Cover' very similar in many respectcs to its slightly bigger brother 'The Bearish Engulfing Candle'. In addition momentum is diverging in a strong bearish way on weekly RSI and MACD. I think a weak close tomorrow could be pretty damaging, though it would need a sustained move below 1325/1330 to avoid a scenario of further sideways with possibly new highs still on the cards eventually.

S+P - Bullish Candle Formation - Trumped.

Yesterday's post emphasised a potential bullish Candle formation, together with a Bullish Engulfing pattern. Today's price action completely neutralised and undermined this pattern, in the process completing a Bearish 2-day formation known as 'Dark Cloud Cover'. - Sometimes a failed or quickly repelled pattern or formation can be a strong indicator of market direction.  Thus in the absence of decent coin to toss, it may be worth a punt on tomorrow's action continuing lower.

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