Indicators - ST Overbought with Negative Divergences Sprinkled on Top


It was heady to feel the bullish exuberance pulsing around the MarketWatchers LIVE show, but now that the day is over and the indicators are ready for review. I was seriously disappointed not to see the supporting evidence I wanted so I too could enjoy some bullish exuberance. Our poll question today was a bit unfair, but certainly represented the excitement and poked a little fun about not being on the bull band wagon. The current results are below. Note my vote was "stuck in neutral". I still feel good about that vote, especially after reviewing DecisionPoint indicators.

These are the indicators of concern right now. They are flying skyward which is bullish. However, they are now in overbought territory. They are not in overbought extremes, but they are already very close. 

Breadth is showing a negative divergence on the climactic indicator chart. I would expect to see rising Net A-D volume and price with such a strong finish to two days of trading. 

Finally, I don't like the way volume is reacting to the rally of the last three days of trading. I would expect to see better than average volume on a strong rally like today's and we didn't.

Conclusion: I'm not trying to make a case for a bear market. What I am trying to do is temper bullish enthusiasm. Greg Schnell said it best today when he told us we are in a good position to try and take advantage of a short-term market bottom with the ability to set tighter stops than normal. Keep your stops in play in case this turns out to be a fake out breakout. Also pay attention to the $270 level on the SPY (2700 level on $SPX). This marks where price can close an overhead resistance gap. If it's turned away, there's likely another test of this month's low. 

Helpful DecisionPoint Links:

Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)


SCTR Ranking

Technical Analysis is a windsock, not a crystal ball.

Happy Charting!
- Erin

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Erin Swenlin
About the author: is a co-founder of the website along with her father, Carl Swenlin. She launched the DecisionPoint daily blog in 2009 alongside Carl and now serves as a consulting technical analyst and blog contributor at Erin is an active Member of the CMT Association. She holds a Master's degree in Information Resource Management from the Air Force Institute of Technology as well as a Bachelor's degree in Mathematics from the University of Southern California. Learn More
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