S&P 500 Bearish Divergences
The daily chart of the S&P500 shows price in an uptrend channel while currently trending in the lower half of the channel which is the weaker half of the channel where price is most susceptible to declines. For now the price candles remain green on the daily chart which indicate bullish momentum behind price. Most obvious on the chart right now is a bearish divergence between price and the lower indicators. A bearish divergence occurs when price makes a series of higher highs, while the indicators below make a series of lower high, thus creating a divergence in the trendline drawn across their respective peaks.
The Price Percent Oscillator(PPO) shows a steady decline in price momentum with the green line PPO line beginning to cross below the purple signal line. This indicates bearish momentum in the short-term, but since both lines are still trending above the 0 level the intermediate-term momentum is considered to be bullish. The current reading could be interpreted as a bullish momentum pullback.
The Average Directional Index(ADX) shows the green directional line above the purple directional line which indicates a bullish trend in price, but the purple line is close to crossing back above the green line which would indicate a shift to a bearish trend in price. The green directional line is in a slow decline as price has moved higher indicating weakness in the uptrend for price. The histogram in the background is dark green and trending flat meaning that there is no force or strength behind the dominant trend.
The Traders Dynamic Index(TDI) shows the multi-color RSI line declining, but still above the 50 level which is the midpoint of the total RSI range. Since most of the RSI trading range has been between the 40-80 levels the background is colored green to indicate bullish momentum in the intermediate-term. We still want to watch that 50 level though as a breach below it could mark the beginning of a strong momentum pullback in price. The Bollinger Bands of the RSI are narrow and trending sideways indicating that volatility has leveled out and that a large move in either direction is likely. The TDI is also showing a bearish divergence from price above just as the other indicators are.
Overall, the S&P500 remains bullish on the daily chart with caution warranted due to the bearish divergences between price and the lower indicators. Current stop-loss orders for trend traders should be placed just below local lows made in September and October of 2020 near the $3230 level.
The Price Percent Oscillator(PPO) shows a steady decline in price momentum with the green line PPO line beginning to cross below the purple signal line. This indicates bearish momentum in the short-term, but since both lines are still trending above the 0 level the intermediate-term momentum is considered to be bullish. The current reading could be interpreted as a bullish momentum pullback.
The Average Directional Index(ADX) shows the green directional line above the purple directional line which indicates a bullish trend in price, but the purple line is close to crossing back above the green line which would indicate a shift to a bearish trend in price. The green directional line is in a slow decline as price has moved higher indicating weakness in the uptrend for price. The histogram in the background is dark green and trending flat meaning that there is no force or strength behind the dominant trend.
The Traders Dynamic Index(TDI) shows the multi-color RSI line declining, but still above the 50 level which is the midpoint of the total RSI range. Since most of the RSI trading range has been between the 40-80 levels the background is colored green to indicate bullish momentum in the intermediate-term. We still want to watch that 50 level though as a breach below it could mark the beginning of a strong momentum pullback in price. The Bollinger Bands of the RSI are narrow and trending sideways indicating that volatility has leveled out and that a large move in either direction is likely. The TDI is also showing a bearish divergence from price above just as the other indicators are.
Overall, the S&P500 remains bullish on the daily chart with caution warranted due to the bearish divergences between price and the lower indicators. Current stop-loss orders for trend traders should be placed just below local lows made in September and October of 2020 near the $3230 level.
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