“We can anticipate another rally once the political charade plays out, but what happens after that?
We can safely predict the inevitable budget-debt ceiling deal will spark yet another “the Status Quo is saved” rally in the stock market. But what happens after that?
Here is a three-year chart of the S&P 500 (SPX). The potential for another spike higher is reflected in the rising stochastics.
But overall, the chart is showing weakness and the potential for a serious decline. The negatives include:
1. A number of indicators (MACD and relative strength) are negatively divergent, i.e. they are declining as price moves higher
2. The 20-week moving average (MA) is stretched above the 50-week MA (i.e. the market has reached a point where the 20-week tends to converge with the 50-week MA)
3. The upper Bollinger band is flattening, showing loss of momentum.
Some similarities with 2011 are discernible. In 2011, a multi-month topping process traced out a classic head-and-shoulders pattern…..”
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