Monday, October 26, 2009

SPX- 10/26: Weekly MACD Histogram Divergence


I just wanted to post this chart even though it is not EW related. The MACD Histogram bars on the SPX weekly is showing a large negative divergence with the moving average indicators.

If correctly interpreted, the Histogram bars should be indicating that a MACD cross is about to occur. In fact, the MAs are looking to cross, if not flatten out and converge on one another.

MACD MAs, like all MAs, are lagging. The histogram bars are supposed to provide a little bit of an advance indication.

Given everything else I have presented in the past week along with this potential cross, I am more certain we will see some type of pullback.

P3? Hmmm... Let's address that when it truly peeks it's head.

6 comments:

  1. Nice catch Grand.

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  2. thk john and pug! i guess we'll see if this means anything.

    pug i will chk out ur blog. thx for the link!

    ReplyDelete
  3. I believe that the histogram is just a calculation of how far the two moving average lines are apart. When the market advance begins to slow down or consolidate, then the faster moving average starts to flatten, while the slower one keeps rising. I am not sure you can say there is a "divergence" since the MACD and the basically two ways of presenting exactly the same data.

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  4. jdnew7

    Thank you for viewing my blog and sharing your comments.

    You are right regarding the histogram representing the difference between MACD and it's trigger line.

    However, I do maintain that a divergence has occurred between the histograms and MACD. Per StockCharts, "MACD-Histogram movements are relatively independent of the actual MACD."

    The main thing I am trying to point out is that the histograms is giving an advanced indication that a MACD cross is about to occur.

    This cross at the weekly level may have some bearish implications; that is, a trend change at least in the intermediate term.

    This is the same concept as divergence between price and the MACD.

    Since I am no TA expert this may be a better explaination. The IBM example is a pretty good one:http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_conve#macd-histogram_benef

    GL!

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