$SPX Monthly with implications of 2000 & 2007

2014年3月1日

In December of 2013, I put this chart together using the 3, 9, & 12 EMA's. I went back to 1998 and the idea was to calculate the % difference between the 3EMA and the 9EMA at market turning points in hopes of finding an absolute number that would suggest a market top was in place or was forming. That didn't work out, but what I discovered is that when you have a drop in the % difference in the 3EMA over the 9EMA at a new high along with divergences in the RSI, then this becomes a warning.

As you can see on the chart, in May of 2007, the separation of the 3EMA over the 9EMA was 4.3%, but in October of 2007, when SPX closed at a new high, the separation was only 2.9%. This showed a loss of momentum which, when coupled with negative divergences in the RSI and the CCI, strongly suggested that the SPX was nearing a top of some kind. By the end of November of 2007, the RSI had produced a failure swing and the CCI dropped below 100 and the rest is history.

This same type of chart set up with divergences in RSI & CCI occurred in August of 2000 when SPX made a new closing high in the monthly time coupled with negative divergences in RSI & CCI. In September, with SPX down 85pts, the CCI fell below +100 confirming that sell signal.

I'm not trying to call a top here, nor do I know what the current divergences and loss of momentum mean in today's context because back in 2000 and 2007 we didn't have all the HFT's running the show. It's very possible that the markets will ignore all this and just head north and so on, and so on. Regardless of whether or not anything comes of the warning the current situation implies, it's still a warning until proven otherwise, IMHO, of course.

Interesting chart here: stks.co/t030O

GL in the week ahead.