While doing some analysis I found an interesting correlation between the current divergence showing up on the SPX and the divergence shown before the last major correction. Obviously we are in a 4 year bull market, but the position in this trend channel may offer some insights.
- The last time the S&P 500 broke into the top quarter of the channel, it stayed there for almost exactly 7 months. We are currently in our 6th, going on 7th month.
- In hindsight, the last 2 largest corrections were apparent in the RSI divergence leading up to them.
- The most current respectable correction stayed within the 50% channel. The even larger correction before that went from the top of the channel all the way to creating the bottom of the channel we are currently in.
- If we corrected to the bottom of the channel again, that would put us at 1500, which is also the 0.236 Fibonacci retracement of the current bull market.
- Picking a major market turn is always a difficult and risky proposition, but the SPX is looking overbought in multiple areas. The technical and fundamental elements of this equation make a 23.6% - 38.2% correction look inevitable though, and it is really just a matter of when the current irrational exuberance will give way to a realistic correction in expectations.
- The last time the S&P 500 broke into the top quarter of the channel, it stayed there for almost exactly 7 months. We are currently in our 6th, going on 7th month.
- In hindsight, the last 2 largest corrections were apparent in the RSI divergence leading up to them.
- The most current respectable correction stayed within the 50% channel. The even larger correction before that went from the top of the channel all the way to creating the bottom of the channel we are currently in.
- If we corrected to the bottom of the channel again, that would put us at 1500, which is also the 0.236 Fibonacci retracement of the current bull market.
- Picking a major market turn is always a difficult and risky proposition, but the SPX is looking overbought in multiple areas. The technical and fundamental elements of this equation make a 23.6% - 38.2% correction look inevitable though, and it is really just a matter of when the current irrational exuberance will give way to a realistic correction in expectations.