Bullish Divergence Comes to the Market

The chart below shows a six-month chart of the S&P 500 (SPX). Buying appetite was pushing indexes up, but there was not a lot of positive news on the Street on Tuesday. Consumer confidence was its worst in decades. But this market is just simply oversold and bargain hunters were choosing Tuesday for picking up undervalued stock. In the chart you can see an interesting pattern in the S&P - very strong bullish divergence with Relative Strength Index [RSI]. A similar picture can be seen with either the Dow or Nasdaq.

click to enlarge

Comments

[investor88:]

Good point about bullish divergence. In times like these, we cannot just look at single indicators.

2008 Oct 29 09:01 AM

[Smarty_Pants:]

The chart also shows a bullish divergence from July through mid-August, just before the market plunged.

2008 Oct 29 10:22 AM

[Lookn4$:]

How do you plot the New 52 -week lows and highs of the SPX. What is the symbol for these indicators?

2008 Oct 29 10:50 AM

[RiskAverseA...:]

I concur with Smarty_Pants and would note the bullish price-RSI divergence persisted right to September 17th. However, if this were viewed in conjunction with other technical measures, one might not have quickly jumped to a bullish conclusion.

Following the market's launch higher September 18-19, I recognized the wisdom of waiting for a retest of the September 17th low and subsequent reaction. When the September 17th low was taken out on September 29th, I knew something wasn't stirring the Kool Aid. Not long anything, I unfortunately did not get long a boat load of Puts. I am kicking myself over this...

2008 Oct 29 11:09 AM

[rinkerinves...:]

Based on my current analysis, SSO started an upward trend at $29.46 on October 29, 2008. Note that $40.95 is the target price.

2008 Oct 30 02:10 AM