Over the last several months, I have followed two charts that give an indication of a slowdown in participation as those slowdowns are usually followed by a give back of one degree or another. I have used a chart that employs PVT (Price Volume Trend) and this chart which shows the percentage difference between $SPX and its 250EMA.
I've watched both of these charts to get an idea when the market might be weakening. These two chart setups performed equally well until the September highs. At the September highs, this PPO chart showed negative divergence between the % difference of the 250EMA and price, a warning of impending doom, while the PVT chart synced with the market giving no hint of what was to come. I'm not giving up on the PVT chart but, IMHO, this PPO chart proved to be more predictive going into the September highs and as a result I am paying closer attention to this chart over the PVT chart.
This chart is very easy to set up. Just add PPO to an $SPX chart, set the PPO as I've set it on this chart and follow along.
It's important to note that each move must be isolated from previous moves. In other words, once you've got a bottom, like we had in mid-October, then you start all over with the PPO % difference and focus on the move at present and any signs of weakness going forward.
At the moment, we have a situation where the PPO seems to be rolling over but this is not a warning as it is in sync with the $SPX. In the days & weeks ahead, it will be important to watch for the PPO to stay in sync with the $SPX. However, there will come a time, because there always comes a time, when $SPX makes a new high but the PPO does not and sets up negative divergence instead. We are not there yet but if you set up a chart like this one then when we do get there you won't be surprised.
GL
I've watched both of these charts to get an idea when the market might be weakening. These two chart setups performed equally well until the September highs. At the September highs, this PPO chart showed negative divergence between the % difference of the 250EMA and price, a warning of impending doom, while the PVT chart synced with the market giving no hint of what was to come. I'm not giving up on the PVT chart but, IMHO, this PPO chart proved to be more predictive going into the September highs and as a result I am paying closer attention to this chart over the PVT chart.
This chart is very easy to set up. Just add PPO to an $SPX chart, set the PPO as I've set it on this chart and follow along.
It's important to note that each move must be isolated from previous moves. In other words, once you've got a bottom, like we had in mid-October, then you start all over with the PPO % difference and focus on the move at present and any signs of weakness going forward.
At the moment, we have a situation where the PPO seems to be rolling over but this is not a warning as it is in sync with the $SPX. In the days & weeks ahead, it will be important to watch for the PPO to stay in sync with the $SPX. However, there will come a time, because there always comes a time, when $SPX makes a new high but the PPO does not and sets up negative divergence instead. We are not there yet but if you set up a chart like this one then when we do get there you won't be surprised.
GL