S&P 500 Bearish Divergence Raises Intermediate Term Risks

As most active investors are aware, the S&P 500 (INDEXSP:.INX) has traded in a tight range over the past several weeks. Recently, stocks have touched the lower part of that range, testing the late summer breakout.

But there are a couple of interesting developments that are worth monitoring for both short-term traders and longer-term active investors; a key test for the former, and an S&P 500 bearish divergence for the latter.

These observations show up on two different time intervals/charts.

S&P 500 “Daily” Chart

The first chart I’ll focus on is the daily bar chart for the S&P 500. As you can see, a wedge formation has broken to the downside. This is concerning near-term, especially if momentum were able to build. The first line of price support is at 2120, which is followed by deeper support at 2100.

s&p 500 daily chart technical support level october 12


S&P 500 “Monthly” Chart

If the S&P 500 can hold above key price support levels, it can rally once more. But one nagging concern lies within a longer-term time frame.  On the “monthly” bar chart, a negative RSI divergence has developed. Since this is a monthly chart, the S&P 500 bearish divergence could go on for a while yet. However, it is worth noting that Stochastics are overbought and potentially rolling over.

s&p 500 bearish divergence stock market intermediate term decline 2017


More from Gavin:  Gold: Expect An Uptick In Trading Volatility

Thanks for reading and trade safe.


Twitter:  @OptiontradinIQ

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.


Sign up for our FREE newsletter
and receive our best trading ideas and research