SPX - expect short term pullback (bearish divergence)

SP:SPX   S&P 500 Index
The markt has been more bullish than bearish lately. However it is getting overbought in the near term and a bearish divergence is now seen on the daily chart . Hence some pullback from here will not be too surprising. Bearing in mind divergence usually result in only a short term trend change lasting several candles. I am looking at possible near term SPX support at 3885 (recent pivot low).

While SPX managed to break above its 200 day moving average and even the longer term trendline resistence that had proven to be a tough one to crack in the past few months, there are still a lot of skepticism especially when "bad" news (eg mass layouts by big techs) still abound.

The fact remains that the bigger picture (say 2 monthly chart) remains in a sideway "diamond pattern" consolidation. Assuming the market is indeed on the recovery, It will be weeks (or even months) more before the 200 day moving average can flatten and turn up. Hence, SPX could continue to whip saw around the 200 day MA for a while.

There are more and more stocks that are forming/have formed basing patterns, ready (or have already begun) to reverse into an uptrend. The way to navigate this market is to trade those stocks showing high conviction technicals. The more we see such stocks, the more we will be convinced the market is probably turning the corner (albeit it will still be volatile for a while until it becomes too obvious). More importantly is also to have strict exit rules ( ie stop losses) in place in case we are wrong. Keeping losses small and letting winners run is the way to go although it is definitely easier said than done.

Disclaimer: Just my 2 cents and not a trade advice. Kindly do your own due diligence and trade according to your own risk tolerance and don't forget that money management is important! Take care and Good Luck!

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