After the S&P 500 (SPX) 01/26/21 all-time high it appeared a decline lasting at least two weeks with a minimum retracement to SPX 3660 could be underway. Both targets failed to be reached as ravenous bulls viewed the paltry drop a buying opportunity.
The daily SPX chart courtesy of Trading View illustrates RSI Bearish divergences.
As of 02/05/21 there’s a quadruple bearish RSI divergence. Normally there are not more than triple divergences. This extraordinary number of divergences implies in the near-term prices could continue to climb.
The hourly SPX chart reinforces this assumption.
The hourly SPX -RSI reached its highest level since the rally in late January began. Stock indices almost always have at least one RSI bearish divergence before there’s a decline.
The daily NYSE new highs chart courtesy of StockCharts.com illustrates bearish internal momentum.
While the NYSE new highs have broken above the mid-January bearish divergences it still has a divergence vs. the early January maximum. Usually there are at least two bearish divergence over a period of several weeks before a significant highs is in place for US stock indices.
The daily Bullish Percentage chart illustrates a broader based bearish divergence.
The Bullish Percent Index is a breadth indicator based on the number of stocks on Point & Figure Buy Signals within an index.
When analyzing the Bullish Percentage Index, patience is required. It normally can take several months and many bearish divergences before a major stock top is in place. The current reading indicates the SPX is probably in the late stage of its rally that began in March 2020. There’s a good chance more bearish divergence could occur before a final price peak is in place.
Since March 2020 US stocks have been in a major spike up, moving higher and faster than any rally since the Dow Jones industrial Average bull market in the mid- 1930’s. What’s happening in early 2021 could be a price spike on top of a price spike.
In the near-term, declines may only last a few days. Major Fibonacci SPX resistance is at 4008. The US stock market bull move since March 2009 will be a Fibonacci 144 months in March 2021. Perhaps a major peak in the low 4000 area could be made in March 2021.
Traders are short 50% non-leveraged SPX related fund since the open on 01/07/21, with a stop loss on half the position at SPX 3900. Continue holding short.