S&P500 Weekly Pum-Chek

CME_MINI:ES1!   S&P 500 E-mini Futures
We are going so local in descriptive language today! No other word better describes the S&P500 weekly chart just now, other than Pum-Chek
In local Singlish, this means punctured, or rather, out of air. And that is how the S&P500 appears technically. Allow me to explain...

First up, the obvious giveaway here is the candlestick pattern... at the historical high candle, it forms the classical dreaded Dark Cloud Cover, and a more detailed description of this pattern is linked here. Furthermore, this pattern formed at the resistance of a Broadening Wedge or Megaphone chart pattern, suggesting a failure at resistance for some downside risk to the lower end of the pattern. Noting this, a Dark Cloud Cover is usually affirmed with a following bearish candle... let's see if this works out in the coming week.

Secondly, noted that the trading volumes have been dropping lower since May 2020, and significantly so since November 2020 as the S&P500 continued weeks of historical highs. Again, even more pronounced divergence in price to volume since the start of 2021. There is a limit to the stretch of this price volume rubber band, and it will snap back further proportional to the stretch.

Third, the Relative Price Momentum indicator (RPM, top indicator panel with colourful lines) has just turned down, and broke below zero.

Fourth, the MACD is stalling in divergence to the series of historical highs, since November 2020. Again, this is not sustainable.

Fifth, noted the decrease in Net positions of the Non-Commercials (second from bottom, orange line) as well as the Top 8 Traders (bottom panel, yellow line). Furthermore, these net positions are now short as the indicators are now below zero.

A month ago, it appeared that a bearish engulfing would have done the job tanking the market in retracement, but no, it formed a massive bullish engulfing for further upside to set recent record highs. In doing so, more indicators are flagging more obvious bearish divergences, and when this comes to settlement, it can get very ugly for a quick and short period.

Arguably, we are coming up to the very well known most bullish months of the year... being March and April, so there are two very possible polar outcomes:
A. a short and sharp deep retracement occurs and resolves within a couple of weeks; or
B. the bearish divergence continues as new historical highs are pushed forward

As the proverbial "It ain't over till the fat lady sings" comes to play, I am left watching in awe and anticipation when the same lady will break out into a bear dance.

Stay healthy, stay safe, manage your risks well... both in the pandemic environment and in the market. Have a good week ahead...


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