Approaching The “Extreme” Projection (Negative Divergences)

Market Overview

(… This should be enough to generate a period of consolidation, at a minimum.)

After reaching its initial target of 2020/2022, SPX underwent a minor correction down to 1990 where it found good support and began to rally.  This suggested that it was going to try for the “extreme” count of 2040.  By the end of the week, it had risen to 2033 where it closed, on the high of the day.  Since no selling has yet appeared in this latest move, we could assume that it intends to reach its 2040 projection before encountering profit-taking. 

Projections always entail a possibility that the price will either fall short of the exact count, or go a little higher. In this case, there is a confirming count which was reestablished at the 1990 level which suggests that it could go just a little higher.  

Projections can also be validated by the price and breadth behavior as they are approached. There is already negative divergence showing on a daily and intraday basis. This is a sign that caution should be exercised if you are bullish. 

There may be more at stake here than just a short-term top.  For one thing, the count from the low will have been exhausted. Next, although the index has penetrated the first tier of resistance from 2020, it has now reached the second which starts at 2040 and extends to 2135. On the P&F chart, it looks formidable!

Another consideration is that many of the best leading indexes are showing relative weakness to the DOW and SPX. Since, until we make a new high, we are still in a downtrend, it would be prudent to watch carefully what happens next at this level of recovery. 

Intermediate Indicators Survey

Last week, the weekly MACD recovered another 5 points to -25.07 while remaining very negative.

At 64.03, weekly SRSI has gone positive but is beginning to angle over. 

The NYSI (courtesy of Stockharts.com) continues to rally from its severely oversold position.  Over the next few weeks, we will be able to compare its action to the October 1911 low (which was also an intermediate low) to see if it is heralding a new high in the SPX. For now, its RSI and MACD are very overbought and need to correct.