Momentum’s Negative Divergence

If you are like me you hate roller coasters. I know a lot of people enjoy them, they like the thrill of going up and down really fast while getting the adrenaline boost of almost dying. But they aren’t for me. I’m the guy who will sit in the middle, gripping the safety bar waiting for the stupid thing to be over.

This market has been like a roller coaster. We’ve had 5 days up, followed by 3 big days down to the previous low, then we had 3 days to break passed the previous high. This has likely been a short-term trend follower’s worst nightmare. Luckily we have had a fairly decent pulse on where things have been, with the note of support on July 25th, right before the three-day rocket we recently experienced. However, the weakness we looked at on July 24th in the small caps is still present, experiencing somewhat severe under performance to to large caps over the past few days..

I’m a big fan of the McClellan Oscillator, which I’ve discussed numerous times (here, here, and here). As you can see below in the top panel, the McClellan Oscillator has not mirrored the price action of the S&P 500 with higher highs. We’ve seen the McClellan fall from 100 to -2.75. In the bottom panel I’ve included the Ultimate Oscillator which takes into account three different time periods to measure momentum, this momentum indicator is also showing us a negative divergence.

Tomorrow will likely be a critical day for the market with it being a FOMC announcement day. It seems the market has been trying to price in additional easing, so if Bernanke does not give the equity market what it wants, then possible weakness could be in store.

 
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

A Short Covering Rally

I am the first to tell you that there are smarter technicians out there than myself. Which is why I make sure every time one of them is in the press I check in to find out their opinion on the market. Below are the thoughts of Mary Ann Bartels, the head of U.S. technical analysis for Bank of America/Merrill Lynch.

From the WSJ:

Just when the market was on the precipice of breaking key support on the S&P 500, ECB president Mario Draghi comes to the rescue with the promise to do whatever it takes to preserve the euro. Global equity markets responded positively. The S&P 500 reversed sharply on expanding volume to break above the previous high of 1380 to continue to rally to test resistance at 1400-1425 and the May 2008 high is near 1440. Key support is 1325, which held last week.

All is not rosy with the technicals on this breakout.

We have been making the case that the recent rally was more short covering than new demand (buyers). The technical indicators confirm this with negative divergences in price momentum and market breadth. If these indicators do not shift more positively, a potential correction into September is still on the table.

I tend to agree with Marry Ann. From what I’m seeing, momentum has not been participating in the rally’s the major markets have been experiencing, setting lower highs with each new high in the market.

Source: Shorts Eating The Rally, Biding Their Time

 
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

A Golden Breakout

It appears gold is finally breaking out of its pennant pattern on what seems to be fairly strong volume. With the price of gold closing yesterday above falling resistance, we also see it has hit the resistance on RSI and every so slightly broke past the top trendline of the channel I’ve drawn on the On Balance Volume. From here we will be watching if original resistance trendline will become support on any future weakness.

One important note to keep in the back of your mind when evaluating commodities like gold, is the upcoming FOMC meeting. If the Fed does not give any additional hints or announcements of further QE, gold could see some weakness on the lack of additional easing..

 
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.