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Bearish S&P 500 Signs Watch Early this Year

Jan. 18, 2010 8:28 AM ET
John Mylant profile picture
John Mylant's Blog
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Long/Short Equity, Growth, Value

Seeking Alpha Analyst Since 2009

Residing in Colorado Springs, Colorado. Has been trading and coaching using a self-developed option trading system for 10 years. Philosophically conservative, accurately trades weekly options with a strong risk management approach. Well sought after by investors around the world, he teaches a minimum and hand-selected number of students each quarter how to trade his system. Besides investing his interests are: Acoustic Guitar, Kayaking, Mountain Biking

This year, I beleive we will slowly be moving into a bear market phase, but before that we are going to see a really nasty correction in markets and a slow recovery this year. Our 10 month upward movement will sputter soon. It appears that the market may have reached a major top here.

The strength of the S&P 500 to stay so far above the Bollinger Band bottom for well over 200 days tells us something here. We are nearing the end of our run. As we reach the all time high that the SPY has been above its bottom Bollinger Band, we sahll spuuter and lose steam.

This may be confirmed with a huge divergence in our MACD. This is huge! As we look at the MACD we are seeing a negative divergence as we also observe the strength of the rally weaken considerably. Finally, in its last phase, we see the weakest pointi the upward movement of the stock. This tells us that the markets have slowed down considerably.

On top of this our third sign is the rising wedge we see.

Rising wedges are extremely bearish.

Between the three, long move aboe the Bollinger Band bottom, negative diverging and weakening MACD, and the rising wedge, one should postion themselves for a bearish move before mid summer.

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