Nothing too fancy here...
Lower-lows in the S&P500 ($SPX) accompanied by higher-lows in RSI(14)... classic positive momentum divergence.
Violation of the divergence would occur if RSI fell below the ascending trend line below the lows. This would almost certainly be accompanied by further downside in the S&P500, which is clearly in a downtrend (on an intermediate-term timeframe).
Speaking of timeframe - timeframe is one of THE most important parts of technical analysis, trend analysis, and trend-following, in general.
In the TA world, we say that patterns, trends, and analysis is "fractal," meaning, it works across all timeframes.
So whether you're analyzing a weekly, daily, hourly, or 1-minute chart - technical analysis "works" to help the analyst identify the primary trend and then to search for additional evidence (through various indicators, potential support/resistance levels, volume on up vs. down days, and momentum/velocity of the trend at hand).
In the case of the chart above, we're observing a daily chart, which would typically be used for short-to-intermediate-term analysis (timeframe), and we're trying to identify a potential trend reversal.
If the "clue" or "evidence" provided by the RSI divergence is valid, then we could see price find a bottom in the near future with higher prices to follow.
'till next time...
Adam D. Koós, CFP®, CMT, CEPA
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Lower-lows in the S&P500 ($SPX) accompanied by higher-lows in RSI(14)... classic positive momentum divergence.
Violation of the divergence would occur if RSI fell below the ascending trend line below the lows. This would almost certainly be accompanied by further downside in the S&P500, which is clearly in a downtrend (on an intermediate-term timeframe).
Speaking of timeframe - timeframe is one of THE most important parts of technical analysis, trend analysis, and trend-following, in general.
In the TA world, we say that patterns, trends, and analysis is "fractal," meaning, it works across all timeframes.
So whether you're analyzing a weekly, daily, hourly, or 1-minute chart - technical analysis "works" to help the analyst identify the primary trend and then to search for additional evidence (through various indicators, potential support/resistance levels, volume on up vs. down days, and momentum/velocity of the trend at hand).
In the case of the chart above, we're observing a daily chart, which would typically be used for short-to-intermediate-term analysis (timeframe), and we're trying to identify a potential trend reversal.
If the "clue" or "evidence" provided by the RSI divergence is valid, then we could see price find a bottom in the near future with higher prices to follow.
'till next time...
Adam D. Koós, CFP®, CMT, CEPA
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
CMT Association is a global non-profit credentialing body committed to advancing the discipline of Technical Analysis. Improve investment performance and career opportunities: www.cmtassociation.org