TECHNICALS -SPX
The picture of the SPX is telling quite a bit in my opinion. Note the lower highs on the MACD Histogram and the Rate of Change oscillator's as the markets have moved up. This is a bearish divergence suggesting the market is going to head lower shortly. A line from May 22 to July 17 on the MACD Histogram (below) and you have the positive divergence and a line from July 12 through today (above) and you will clearly see the negative divergence.One can see the opposite happened back in May, June and July when the market was making lower lows or equivalent lows and the MACD Histogram and the Rate of Change oscillator's were making higher lows as the markets were bottoming.
posted by DAVID at
7:01 PM
2 Comments:
David - I don't think you want to look at the MACD histogram as an indicator - I don't believe the MACD is of much value at all except at the transitions of the histogram from positive going to negative going and vice versa and then it is generally too late to be of value. I wasted six months on it about 10 years ago and then gave up trying to discern any real meaning.
I like to use the 8 EMA crossing the 21 EMA on the weekly charts - it provides a clear picture of overall market sentiment and we just had a crossing 3 weeks ago going up.
Can it switch back? Sure it can but we haven't reached the maximum excursion from the 90 EMA yet and, barring calamity or catastrophe I think we continue the current path into October (chop chop chop but ever higher).
I agree that using a MACD histogram as a "buy-sell" tool on its signals is useless. In fact, I have studies that show taking the opposite of the trade on a buy signal is more profitable!
However, the way in which David is using it as a confirming or non-confirming indicator works quite well. Stochastics divergences don't work nearly as well as MACD divergences, and I strongly suspect this bearish divergence will work out nicely for a trip to the downside.
TC
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