\t\tUntil the S&P 500 can break above the 2475 level achieved earlier in August, the bears get the benefit of the doubt.<\/p>\n
\t\tBearish traders can short the S&P 500 right here at about 2460-ish, and keep a stop at 2475-ish. That will limit any potential loss if the market moves higher from here.<\/p>\n<\/blockquote>\n
\tOn Friday, the S&P 500 closed at 2476. So, if we’re adhering to strict rules, bearish traders should be covering their short positions because the bulls are back in charge.<\/p>\n
\tBut this is a good example of how technical analysis is more of an art than an exact science<\/a>. It’s also why I added “-ish” to the 2475 level. It allows for some wiggle room depending upon other conditions.<\/p>\n \tYou see, while the S&P did close above the 2475 resistance level, it wasn’t a “decisive” break. There wasn’t much energy behind the move. There wasn’t much volume. And the index actually fell a few points in the final hour of trading on Friday.<\/p>\n \tWe also have several technical indicators – like the McClellan Oscillators<\/a> for the NYSE and the NASDAQ – trading in overbought territory (which often precedes at least a quick pullback). Volatility Index (VIX) option prices are predicting a higher VIX – which usually comes with a falling stock market. And the intraday charts of the S&P 500 are overbought and are showing negative divergence.<\/p>\n \tFor example, here’s the 15-minute chart of the S&P 500…<\/p>\n \t \tThe index ramped higher on Thursday and Friday. But key momentum indicators like the MACD<\/a> and the RSI<\/a> moved lower. This sort of “negative divergence” tells us the momentum behind the rally was weak. And it often leads to a reversal lower – similar to what happened in mid-August.<\/p>\n \tKeep in mind, this is a 15-minute chart. It’s useful for extremely short-term moves of just a day or two. So, if the negative divergence is going to play out, it should happen by tomorrow.<\/p>\n \tThat’s why I told my Delta Report<\/em> subscribers on Friday that I’d be keeping my short position unless the S&P 500 closed “decisively” above 2475. It didn’t. So, I still have some short exposure going into this morning.<\/p>\n \tToday we can watch how the market responds to the North Korea nuclear bomb news. S&P 500 futures are down just 10 points as I write this on Sunday night. That seems to me like a rather tame response, which is a testament to the underlying strength of the stock market.<\/p>\n \tSo, I’m interested to see how this 15-minute chart plays out. If we get only a modest decline today, and the MACD drops back to zero and the RSI falls below 30, that means the bears will have used up a lot of energy for just a small move lower.<\/p>\n \tIn that case, it will probably make sense to close the short trade for just a very small loss.<\/p>\n \tOn the other hand, if we get a strong decline in the S&P 500 (like a move back below 2462) then the bears can take back the momentum and the market might be set up for another decline – similar to what we saw in mid-August. In that case, it will make sense to hold the short position for a larger downside move.<\/p>\n \tLike I said… today should be interesting.<\/p>\n \tBest regards and good trading,<\/p>\n![\"\"](\"http:\/\/assets.jeffclarktrader.com\/ee-assets\/channels\/articles\/Screen_Shot_2017-09-05_at_11.12.26.png\")
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