S&P 500 bullish divergence :: InvestMacro


by Ino.com

– Last September, I called S&P 500 loses 30% According to the projection on the basis of A comparative analysis.

The index price was at $4,459 at the time. The deepest ravine has since been created at $3,637 last month. 18% of the index’s value has evaporated since the idea was published and 25% from the January high ($4819).

The majority of you voted for a 10%-20% correction and this was the closest call yet as we can’t be sure if it’s over or not.

To remind you, I’ve put together two ETFs and the S&P 500 (black). I chose the Vanguard Value Index Fund ETF (VTV) (in red) and the Vanguard Growth Index Fund ETF (VUG) (in blue). Let’s check out the updated comparison chart below.


Source: TradingView

The bearish alert came to me when the stock value (VTV, red) stopped contributing to the rise of the broad index. Moreover, the gap between the latter and growth stocks (VUG, blue) has widened significantly.

Payback goals for the VUG and S&P 500 were based on the corresponding level of the underlying/lowest performing instrument: for VUG the S&P 500 and S&P 500 were – VTV.

It’s amazing how accurate the VUG target of $217 was hit last month as the ETF fell below that in the $213 valley. This concept was specifically implemented when the VUG bounced off the wide pointer, and the blue bars approached but did not overlap with the black bars.

The S&P 500 nearly closed the gap with VTV last month, but VTV itself is also down and therefore not picked up. The correction target was set at $3,200 last September, and the lowest level since then was seen at $3,637 last month.

Let’s take a look at the S&P 500 chart below to see what could happen next.

SP500 Weekly Chart

Source: TradingView

The price formed a familiar falling wedge (violet) pattern within the current correction. The amplitude of volatility decreases as the price approaches the top of the pattern.

The RSI has already built an invisible bullish divergence that can only be seen by its readings: 30.2 vs. 30.5, which means a valley high vs the bottom bottom of the price chart.

This combination of narrow trend lines and a bullish forked indicator could lead to a potential breakdown anytime soon. Will it be a reversal or a bouncing of a dead cat?

I have added two paths to the graph. The red zigzag shows how the falling wedge will play in the first place. The target (violet flat line) is at the widest part of the pattern added to the breaking point. It coincides with the 61.8% Fib retracement level at $4,367. It can be double resistance.

The next drop should complete the complex correction to $3,185. This target is calculated by subtracting the size of the falling wedge from the target of this pattern. Once again, this area is amazingly consistent with the 61.8% Fibonacci retracement level and the first chart target based on the comparison with VTV.

The green track indicates a sideways consolidation that should remain within the current range of $3,637-$4,819.

Smart Deals!

Ipek Burabayev
Contributor to INO.com

Disclosure: This shareholder has no positions in any of the stocks mentioned in this article. This article is the opinion of the contributor himself. The above is a matter of opinion and is provided for general information purposes only and is not intended to be investment advice. This contributor does not receive compensation (other than INO.com) for their opinion.

by Ino.com – See our Trader’s BlogAnd the INO TV Free & Market Analysis Alerts

source: S&P 500 bullish bias


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