Pullback time
Posted by Danny on November 9, 2015
Markets are trying to catch their breath after the strong run in October. We may see another rally attempt this week, but I think we are going to get more of a pullback before stocks go higher again next year. With many indexes near their all time highs again a lot of investors will probably take some profits.
Let’s have a look at the S&P 500 (click image to enlarge it):
The S&P is bumping into overhead resistance in the 2100-2130 area. Technically the the fast Earl (blue line) is showing a bearish divergence while the slower Earl2 (orange line) is finally flattening out at a very high level. This is the kind of setup that normally starts a pullback of 4 to 6 weeks.
So, if stocks try to climb again this week it will be a chance to take some profits. Next week we will start a new lunar red period and I think the S&P will use it to retest the 2050 level.
Good luck,
Danny
LunaticTrader 
sskm214 said
Hi Danny, does the price work out the bearish divergence as shown by the fast earl blue line? Looks like the divergence starts around the 2000 level.
Thanks
SSK
Danny said
Hi,
Good question.
The price at which divergence starts is not necessarily an indication of how low a correction will go. It may be very shallow and it may fall well below 2000.
Market keeps going up because slower Earl2 has kept rising. But now it is turning down. So, further gains will not come so easy until Earl2 bottoms out again..
Danny
AlanSW said
Thanks, Danny. Excellent and very useful analysis.
Danny said
Thanks for the thumbs up.