Hourly Price Action Suggests Weakening Market: Analysis SPX, SPY

When analyzing a market or stock on shorter timeframes it is very important to use a mix of indicators that can confirm the price trend, or suggest and underlying weakness in the price move.

Technical analysts call different indicators moving in the same direction “confirmation”. When the indicators are moving in a direction contrary to the price trend it is called “divergence”.

The core idea is to use Price, a price indicator and a price volume indicator. If all indicators are moving together in the same direction this is confirming the trend.

When the oscillators contradict the trend this divergence suggests an underlying weakness in the trend and possible direction change.
The Indicators
Chaikin Money Flow
Created by Marc Chaikin, this indicator attempts to discover future trends by summing the accumulation and distribution days of the stock over the set period. If a stock closes in the upper half of the trading range for the day on higher volume this increases the count for the day. If it closes in the lower half for the day on higher volume this decreases the count for the day. This indicator takes into account volume as well as Price Open, High, Low and Close. This is then multiplied by volume for the day and divided by the volume over the selected period.

Relative Strength Index
Wilders RSI, developed by J. Welles Wilder. The premise is that a stock shows strength when it closes on a high and the number of points gained to achieve that high is also important. Also, if the stock closes on a low, that shows weakness in the stock and the number of points lost during the period is also relevant. As we know from candlestick charting the Japanese also say that the closing price is very important psychologically and this factor is taken into consideration in RSI.

In the Hourly Chart
The Green Boxes show that the price trend was confirmed by the indicators.
The Red Boxes Show that the indicators are diverging from the price action.
Technical Conclusion.
The strength of buying is diminishing at these price levels on decreased demand. It is not visible in the price trend yet, but we would expect it to become apparent over the next few days.
Fundamental Conclusion.
Trump is controlling the narrative and continuing to say and do everything he can to support the stock market. The talk of opening up the USA as the pandemic is nearing its peak is designed to give the market bulls more confidence.

The chart above suggests that confidence is weakening, but this could all change with another Trump speech suggesting everything is fine and the economy will be back in business in 2 weeks.

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Thanks
Barry