There was one indicator that gave us a very good warning sign just prior to the Jan/Feb correction. The same warning sign is flashing right now. The Swenlin Trading Oscillators (STOs) have a breadth version and a volume version. When we see divergent tops on these indicators, bad things tend to happen.
These indicators topped and began moving lower out of overbought territory which is short-term bearish. However, what is more concerning is the negative divergence between the STO-B and STO-V. I only located one other time this year where this negative divergence occurred other than February and while it didn't result in a crash, it did portend the consolidation and declining trend that followed. The market already topped, but it is holding on to support at 2650 and along the rising bottoms trendline. This negative divergence suggests these areas of support will not hold.
Conclusion: These divergences rarely occur and I almost missed this one because I don't expect to see them. I'm sending out a thank you to the astute viewer this morning of MarketWatchers LIVE that brought it to my attention. With the market having already topped, I was already tightening stops and divesting from short-term investments. This negative divergence confirms my earlier concerns about this latest top.
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Erin
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