In a recent post from this week, I wrote and posted charts that all suggested that the market in general was heading for a bounce attempt. We are seeing that attempt now so I'm going to post some charts that may help you more clearly understand where we stand. Don't forget to read my last post on market breadth (which is in very bad shape).
The 1-minute 3C chart (taken this a.m.) shows a negative divergence, suggesting at least in the short term, the market will struggle to lift higher.
On this SPY daily chart you can see the volume tapering off the last 3 days, not an indication of a strong rally/bounce. Also there is gap resistance where I drew the trendline and closing above the 50 day moving average (yellow) should be an interesting challenge.
This 5-min SPY chart shows the recent breakout from a triangle consolidation pattern (typically a continuation pattern of the preceding trend).
Another 3C 1-minute chart applied to the IWM (Russell 2k ETF) and again we see the same negative divergence which has become a leading downside divergence.
Fundamentally everything is the same about this chart as the last one except that I'm using a different variation of 3C to get as many confirmations as I can. Again, this is only a 1-minute chart and has no serious implications for the the issue other than short tern trading.
I think it is interesting that the gap up in the IWM occurred on pretty average volume and it'll be interesting to see tonight's price/volume relationships.
To be clear, I do believe this to be a bear market rally that is bearing it's end. We have already begun establishing short positions on our trading system.
Be careful-I wouldn't be chasing this market but rather thinking about taking profits.
