Last week, I spent some time outlining a possible bullish blowoff to the 1420 level. That pattern never developed, and since that time we have seen enough technical deterioration that I feel it is worth mentioning. The chart below provides a few of the occurences that prompt me to view the market from a bearish perspective at this point.
The first thing I would like to point out are the technical indicators at the top of the chart. If we look at them from top-to-bottom, they are the Stochastics Oscillator, Wilder's Directional Movement Index, and the Moving Average Convergence Divergence Indicator. We can see that all three of these technicals indicators experienced a bearish crossover in the last two days. These crossovers are given even more meaning by the fact that the same oscillators on the weekly chart remain bearish. This suggests to me that a downward trend has developed on the S&P 500.
We can also look at the waves formed since the closing high set on April 7 at 1372.45. Since that time we have seen a trend of higher highs and higher lows yield a lower high followed by a lower low. These progressively lower levels suggest that some sort of downward trend has developed.
We have also seen a breakout above the 50-day simple moving average retest and breakdown through the 50-day moving average support. That same trend-line also moved lower for the first time since March 18. I view these two developments as bearish in nature, as well.
My personal repsonse to this situation was to initiate a short position on the S&P 500.
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