Tuesday, May 9, 2017

SPY At Bearish Divergence and Probable Intermediate Topping Point - Gold and Bonds Probably Set to Advance 5-9-17

Click on Chart to Enlarge

I have not posted much the last few months as it was apparent since the last post in mid February that stocks were running pretty hot and were likely to cool a bit, but there was no weekly time frame bearish divergence on the MACD in the indexes and the time duration of the leg up was relatively short for a completed leg up and expected sizable correction.

However the current time frame is a different situation.  The leg up is now 6 months long, which is mature, and at 15% the gain in the SP500, while below historical averages for a completed leg up, is certainly substantial enough to be a completed/completing move.

Currently while the SP500 cash has barely poked above the winter high, the SPY etf is slightly below still as of today.  However since the cash did move to a new high, I am treating this current region as a new high.  And now the MACD on the weekly time frame is in a bearish divergence which is really a more clear warning sign that a correction is more likely to arrive soon.

The chart above shows an hourly chart of SPY and also shows a bearish divergence today.  the daily time frame does not yet have its own bearish divergence since the April low, but I still view the current area as a time that a high could be made.

Seasonally, there is the old sell in May and go away adage, which also is coming into play now after a classic strong November through April in typical season fashion.  So that is another reason here to view the upside as quite limited for the next few months.

In term of market correlation the bonds and gold have been selling off substantially during this last 3 week run up in stocks.  And the inverse correlation in recent weeks (and technical analysis to confirm) suggest that bonds and gold could make a rally for a few weeks.  That would suggest that stocks may begin selling off as of this week.

On a longer term basis, this is a mature bull market, and the 7th year is the classic topping year on a decennial cycle.  And so from an investment standpoint, it seems imperative to have a clear exit strategy or stop trailing technique in place for long trading.

I personally am keeping GDX and gold mining etfs on the radar because the seasonality in the past is for a late spring or early summer bottom.  And the correction in gold stocks looks mature, though could certainly make lower lows into June.

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