ChartArt
Short

Rare strong bear market rally will fade due to profit taking

FX:SPX500   S&P 500 index of US listed shares
479 2 7
11 months ago
The "S&P 500" rallied so strong with a 1% daily gain four consecutive trading sessions in a row for only 15 times since the "S&P 500" exists according to Bloomberg. The Connors RSI also shows a very high value, last seen last October. And the current trading day (Wednesday) closed at the highs of the session, which will create pivot points which be difficult to exceed one more time.

Therefore a sharp decline for at least one day is possible. Also because I think the fast rally was mostly a short squeeze / short covering rally and less driven by real natural demand from buyers - yet. Maybe next week after some profit taking I see a real strong rally to emerge.

Short entry: 1925-1930
Stop loss: 1955
1. Target: 1900
2. Target: 1875
3. Target: 1825

P:S: Here is how rare such a large index move upwards was in recent months, as measured by the Connors RSI . Only three times since Summer 2013:

snapshot
11 months ago
Comment: Actually when I set the Connors RSI to 93.7 (current value) the current spike up is even more rare, more extreme than last October:

snapshot


And here more data:

snapshot
11 months ago
Comment: The current rally is even more rare when adding moving averages in the calculation. Since 2007 this it the SECOND TIME ever that the Connors RSI had such an extreme overbought value while the price is in a bear market below the SMA 50, below the SMA 100 and below SMA 200:

snapshot


last time the same happened (very high CRSI, price trend below SMAs) was in the first week of October 1981:

snapshot
11 months ago
Comment: Sorry: I overlooked this event. So it overall happened only three times so far ever. This was the other time in July of 2010, which is also most similar to what I expect will happen in the next days. A slow profit taking decline creating a dip, later followed by a strong rally.

snapshot
ChartArt
11 months ago
Here is how it looked like in July of 2010 versus right now in February 2016 on the Relative Momentum Index (RMI):


2010:
snapshot



2016:
snapshot
Reply
Lanmar PRO
11 months ago
Agree in some form - especially that the rally is driven by a short squeeze. I think entry is slightly pre mature. 1940/1945 looks best
Agree with your stop. Thanks for your research - interesting.
Reply
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