$SPX Daily 02/15/2014

SP:SPX   S&P 500 Index
589 2 7
$SPX             up 41pts and 2.3% on the week. I do not expect a repeat, but I do expect that $SPX             will break above and close above the previous swing high of 1850.84 by week's end. Since we are only 12pts away from 1850, then this shouldn't be too hard to accomplish in the four trading days next week.

But first, we are extremely overbought short term. The RSI's on the 60min charts of SPY             , QQQ             , IWM             , DIA             , and the $SOX index are all well above 70 which indicates the need for a cooling off period early next week. Should consolidate on Tuesday but could last into Wednesday. Also Zweig Breadth Thrust is at 62.87 showing extremely overbought and readings above 60 usually precede a cooling off period of one degree or another.

Next, the RSI on the daily chart is in an overall down trend and isn't likely to confirm a close at or above 1850. I have found that if the RSI is in an overall rising trend and you have a negative divergence between price and the RSI that price trumps the RSI . But, when the RSI is in an overall downtrend and if there is a new closing high without RSI confirmation then the RSI negative divergence trumps the price and this non confirmation becomes a red flag and perhaps a major red flag. So this is going to be important to watch at 1850 and above.

While I do believe it's possible for $SPX             to reach the 1880/1890 area in the next couple of weeks, I also believe that headwinds will increase once we breach $SPX             1850. This is because of non-confirmation of CCI and RSI indicators in the weekly and monthly time frame. This is going to be extremely important to watch at the end of next week because non-confirmation of these two indicators in the weekly and monthly charts often occur prior to market declines. I will put up a $SPX             monthly chart at the end of next week to explain and illustrate what I mean.

GL in the week ahead.

ES 4 hour chart showing RSI negative divergence with the 20/20 sto about to have bearish cross. More evidence for some type of consolidation Tuesday/Wednesday:
Curtis - Thanks for the excellent TA of RSI explanation and the DMI inclusion. I've not used DMI and will study it. I also am looking for upper channel touch in the 1875-1900 range as a set-up for the next mini-correction. I see some resistance near 1850 since that level failed three times already. It should take out that level soon. I expect much multi-year trend-line resistance near 1900, with all the ignored bad economic news coming back into focus as the catalyst for the next mini-correction. I've already started to prepare my sell list of laggards/dogs rising with the tide, and will trim some above trend winners to add back later.

I have a couple questions: 1) What RSI confirmation would you be looking for at a new high? 2) I use MACD and was wondering if you use it and what you think of it?

Thanks again - I think your analysis and candor is among the best out there.


CurtisM SimGlenn
On 12/31/2013 $SPX closed at 1848.36. RSI closed at 71.26. On 01/15/2014 $SPX closed at 1848.38 and RSI closed at 61.69. Those two ticks above 1848.36 may not seem like much, but they were to me and the proof is in the pudding.

Now, with momo strong to the upside, $SPX is likely to close above the swing high of 1850 but neither the RSI nor the CCI are likely to confirm. RSI may only get to 65 or so and this would be, in my eyes, a major negative divergence. However, and very important, nothing happens without confirmation so if the RSI gives a signal of negative divergence but $SPX ignores this and continues its move up, then the RSI signal would have to be a considered a false signal. A few more days of upside would certainly push RSI up and most likely negate the current down trend. In other words, just because we get a negative divergence in the RSI & CCI doesn't mean the end of the world but it does mean one has to become hypervigilant for the next several sessions until we see how things shake out.

As usual, thanks for your comments and GL
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