The S&P 500 closed Friday almost exactly where it was two weeks ago. Most of the technical indicators closed at the same levels they were at two weeks ago, as well. That just might spell short-term trouble for the bulls.
Look at this 15-minute chart of the S&P 500…
There’s a lot going on with this chart, so we’ll just go through it one by one…
First off, the S&P closed Friday right at the resistance of the late February high. Notice how the rally going into that high is identical to Friday’s rally. Specifically, the move started with a sharp spike higher. Then the market spent an entire day steadily grinding out more gains.
Meanwhile, the MACD momentum indicator at the bottom of the chart failed to rally with the index. This “negative divergence” on the MACD was a strong clue back in late February that we might get a downside reversal. We’re getting the same strong clue right now.
Also, the Relative Strength Index (RSI) at the top of the chart popped into overbought territory on Friday. It had the same condition in late February.
Now… consider this…
Go back and read the Market Minute essay I wrote on February 27 – the last time the stock market was in its current condition. I could write the exact same essay today.
It looks like the bulls have taken back the momentum. It’s hard to justify a short position here. But the best trading philosophy of late has been to fade the prevailing opinions of the financial television talking heads. Indeed, it was their overwhelming bearishness last Wednesday that convinced me to cover my short trades.
Now, after Friday’s big rally, it seems that all of the talking heads are bullish again.
That’s just another item – in a long list of similarities – between the market condition right now and the way it looked in late February, just before stocks suffered a swift three-day decline.
Keep in mind… most of the patterns on a 15-minute chart tend to play out within one to three days. So, I’m only looking for a short-term decline. But if it’s anything like we saw earlier this month, it could be a profitable trade for aggressive short sellers.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Jeff, just a quick note of appreciation for your service. I’ve been tiptoeing into options trading for about a year now and your service is invaluable. I still make small trades as I learn, but your recommendations – and explanations on how and why you make them – have certainly been profitable more often than not.
I also wanted to mention I was really happy for the most recent SDS trade. I hate to leave cash idle earning nothing, but in this market, I agree with you that there’s more downside potential than up. So, I loved your SDS trade. I made a tidy 1.5% on a trade held for about 10 hours overnight. No complaints here on that. It was a quick, low-risk trade in a very nutty market. I’d love to see more similar quick low-risk trades when you see the set up. I was really surprised that feedback may have led you to believe you needed to repeat/justify your thinking on that trade. Thanks again for all of your great work.
– Gregory
Thanks Jeff, I am retired as of 12/31/17. My passion was helping people also, but in a hospital lab setting. I miss it! I hope to do well with your trading system so I can once again help others. Thank you.
– Crystal
Hi Jeff, it is so nice to read your newsletters, especially for us that our mother tongue is not English. So I also learn how to say things the right way. Last trade with SDS I made $18. I laughed. And a nice feeling got me all around. I made 18 bucks. And 18 bucks is more than 17 or 16. I remember your words, taking profits consistently keep you on the game. So true. I have an average profit record following your advices of around $100 per trade. Including in the average the ones we did not make money. So the $18 was kind of joke, but reminded me your wise words. I really don’t have a clue how the market works, what makes it move up or down. My goal to stay sharp, is understanding exactly what you are trying to advise and just follow it. You are the expert, this is why I am subscribed to your service.
– Juan
Thanks, as always, for all your valuable feedback. Please continue sending your comments, questions, and trading stories right here.