Thursday, November 12, 2009

11/12 - SPX: Weekly MACD Cross




While reading Dan's post tonight it made me think of my weekly SPX MACD chart. Dan commented on T-bone's Ending Diagonal count, which was referenced on Kenny's blog today.

As was posted by Dan, Ending Diagonals are usually followed by sharp reversals, usually back to where the ED started. So what would indicate a sharp reversal was in the works to back up T-bone's count?

I would imagine the above chart is unconventional or maybe not? For those familiar with this analysis, I previously highlighted the price behavior after a MACD cross (down) occurred.

Each cross is marked with a red line and a corresponding red line above on the price chart as a point of reference. What one should focus on is the candlestick that follows the cross. In this case, just to the right of the red line.

The comments on the chart details the weekly open, close and change in price for the week after the cross occurred. There have been five meaningful ones I have highlighted since 2/25/07.

As the chart shows, price pulled back an average of 4.4% after each cross down.

SPX is once again nearing a potential cross.

So what would this all mean? If T-bone's count is correct and a weekly MACD cross occurs, given this week's opening price of 1072.31, a 4.4% average decline would take SPX down to 1025 by next week. The caveat here rests on the fact that price must react the same way it did with the past five crosses.

Additionally, the histograms continue to print lower bars and continues to diverge from the MAs, so I would anticipate a cross is very near.

And perhaps T-bone's count is not correct or anyone else's for that matter. But could this cross still signal a 4.4% pull back to come regardless of where we are in the count?

Oh and I almost forgot to mention that a shooting star is in the works on the weekly as well.

I guess we will have to see how this all plays out...

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