AI
Sunday, July 10, 2005 9:07:31 PM
Thanks, newly!
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Elder's SPX chart & commentary:
CURRENT MARKETS
For the past two months I have been writing about my bearish view of the bond market. Now that the bear is starting to bite I want to focus on the signals we often see in many markets prior to their decline.
One option would be to look at a market that is just starting to turn, with fresh signals at the right edge, and then watch how those signals work out during the next month. I feel reluctant to do that, concerned that some impressionable people may jump into that position with both feet and if the market does not follow my script (my crystal ball can get cloudy) they can end up getting hurt. The monthly format of these emails is not really suited for an advisory service. Because of this I’ll review a market in which a turn has already taken place – let us look at its signals so that we may recognize similar ones in other markets.
This is the weekly chart of the S&P index. A divergence between the peaks or bottoms of price and MACD-Histogram is one of the most powerful signals in technical analysis. Its message is especially important on weekly charts and is greatly strengthened when MACD Lines diverge at the same time as the Histogram. The divergences of MACD-Histogram are rare on the weekly charts, but you can find a few of them on this screen. The divergences of MACD Lines are even more rare and tend to occur only at the most significant turning points.
This chart shows a clear bullish divergence of MACD Lines at the bottom of the bear market in 2002-2003. There was also a bullish divergence of MACD-Histogram at that time. Now, for the first time in over two years, both indicators have spoken together again, this time by tracing a bearish divergence. The bulls have been trying to lift prices to a new high since Christmas 2004, but every major rally attempt was accompanied by a lower peak of MACD-Histogram and also MACD Lines. This is very similar to what we saw at the 2002-2003 bottom, only in the opposite direction. The beginnings and ends of trends sometimes look like near-mirror images. These signals suggest that the most profitable traders this year are likely to be those who have learned to sell short. – AE
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Elder's SPX chart & commentary:
CURRENT MARKETS
For the past two months I have been writing about my bearish view of the bond market. Now that the bear is starting to bite I want to focus on the signals we often see in many markets prior to their decline.
One option would be to look at a market that is just starting to turn, with fresh signals at the right edge, and then watch how those signals work out during the next month. I feel reluctant to do that, concerned that some impressionable people may jump into that position with both feet and if the market does not follow my script (my crystal ball can get cloudy) they can end up getting hurt. The monthly format of these emails is not really suited for an advisory service. Because of this I’ll review a market in which a turn has already taken place – let us look at its signals so that we may recognize similar ones in other markets.
This is the weekly chart of the S&P index. A divergence between the peaks or bottoms of price and MACD-Histogram is one of the most powerful signals in technical analysis. Its message is especially important on weekly charts and is greatly strengthened when MACD Lines diverge at the same time as the Histogram. The divergences of MACD-Histogram are rare on the weekly charts, but you can find a few of them on this screen. The divergences of MACD Lines are even more rare and tend to occur only at the most significant turning points.
This chart shows a clear bullish divergence of MACD Lines at the bottom of the bear market in 2002-2003. There was also a bullish divergence of MACD-Histogram at that time. Now, for the first time in over two years, both indicators have spoken together again, this time by tracing a bearish divergence. The bulls have been trying to lift prices to a new high since Christmas 2004, but every major rally attempt was accompanied by a lower peak of MACD-Histogram and also MACD Lines. This is very similar to what we saw at the 2002-2003 bottom, only in the opposite direction. The beginnings and ends of trends sometimes look like near-mirror images. These signals suggest that the most profitable traders this year are likely to be those who have learned to sell short. – AE
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