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
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Paying close attention on how price behaves at the current levels. Thanks for sharing.
vrm07
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Still strong headwinds at Macro level with record high inflation and ongoing war. Without some sign of relief, the rally has no legs. This post while technically right, could be misleading.
I have had no "luck" recently with any bullish patterns or divergences, just bear ones. It's my understanding that up to 80% of these bullish setups will fail in bear markets, and vice versa. I really thought the markets were trying to do a reversal today, but it flamed out and we still wound up in the red. Bearish momentum is very strong and my hands are all cut up from falling knives!
atosh12
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@digital_precision, completely agree with your experience. I see S&P in a downward channel. We may get a day bounce tomorrow but it seems like pros are waiting/wanting it to hit the 4K mark. GL!
hroark
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Remember we are trading in geopolitical time. Headlines either real or fake, can flip the moves in an instant. Very hard to trade in this environment.
bylerzone
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Kept it simple…that’s all that’s really necessary too…nice work