Wednesday, March 30, 2016

Daily Time Bearish Divergence in Money Flow Index and MACD - SPY 3-30-16

SPY and Money Flow Index
SPY Overbought Money Flow Index with Bearish Divergence
This daily chart of SPY shows the 50 and 200 day moving averages which are in a longer term downtrend currently (50 day below 200 day) as well as the 14 period money flow index with a 14 period moving average of the MFI.

What is apparent is an overbought MFI with both the raw MFI and the 14 period average in the extreme region.  And now, after a small pullback and MFI (brown line) dipping below its average (blue line), price has moved to a new high, but the MFI is at a lower high creating a classic bearish divergence pattern on this indicator.  This type of pattern has occurred very near to the final price highs before significant pull backs in SPY over the last couple years.

In an up trending market, I'm sure that the end results could be uneventful.  However, given the moving average downtrend configuration, I believe that this signal should be respected as an exit signal for longs.

I don't have a strong opinion on whether the bull market is complete, and a major decline will take place, though given the Commitment of Traders data on the rally up since February, it seems reasonable that this whole rally has been a short covering move with no big money new interest taking place on the long side.

I will look at speculative opportunities on the downside possibility to come from these levels.


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