Tuesday, October 8, 2013

If We Sell-Off, Is Washington to Blame?

Over at the Armo trader we see the following point about the SPY chart:

Below is a weekly chart of the SPDR S&P 500 ETF. As you see, over the past few years, the market has been on a tear with only really one correction along the way. There have been a few pullbacks and each pullback has been a buying opportunity. This year, the market has had another nice run, but over the past few months, each new high has only been marginally higher. While this is not utterly bearish, this is also not the most bullish sign. As you see, there has been a negative divergence in the RSI (the pink line on the bottom). Each new high in the market has registered a lower RSI reading.

But what I’m watching the most is the trendline that has been established and held a few times over the past year. If this breaks, we could see some technical selling, triggering a 5-10% market sell-off down to around the 50 week moving average. The “QE3 top” might be formed.

Just to refresh your memory, here is the chart he's referring to:

He's noticed a declining RSI; yesterday I highlighted the weakening MACD and CMF readings as well.  I also noted that on the daily chart, we're seeing a move from an upward move to sideways consolidation.

I think the proper way to think about it is the Washington situation may be the eventual trigger that causes the sell-off.