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One for the Bears and One for the Bulls

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FOR THE BEARS . . .

This chart tracks the price of the individual S&P 500 component stocks relative to their 20EMA, 50EMA, and 200EMA. As price approaches the level of a prior top, I look for the indicators to make a lower top, which is a negative divergence. Such divergences tell us that fewer stocks are participating in the current price advance than the one before, and the message is that there is probably a price top and decline coming. We can see how reliable these warnings have proven to be in the past, although the amount of the declines varies greatly.


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FOR THE BULLS . . .

If you're looking for a reason to be bullish, here's a chart that that I featured in last Friday's DecisionPoint ALERT. It shows the percentage of S&P 500 stocks that have PMO crossover buy signals, and recently it went from zero to 100% in a short period of time. When an indicator goes from very oversold to very overbought in one swift, smooth, uninterrupted move, it is a very bullish sign. We can see a similar move from the 2018 price low, and, even though the indicator subsequently drops rather precipitously from its high, we can see that the initial thrust launched an impressive rally. Will that follow through be duplicated this time? It could happen, but, as usual, there is no guarantee; nevertheless, this looks like a good start.


CONCLUSION: So we have a bearish sign and a bullish sign. Which should we believe? Actually, both could be right. While the bearish sign has the potential to be completely dominant, we could see a technical correction, even a substantial one, followed by a resumption of the rally. I personally tend to look for a more bearish result, but that bullish thrust on the second chart is quite compelling, and can't be ignored. Of course, other outcomes are possible, but I think these charts prepare us for many of the possible variations.

** NOTE: I posted these charts intraday, and the indicators do not update until after the close.


Technical Analysis is a windsock, not a crystal ball.


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Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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