Chart Expert Sees Potential Weakening in S&P 500

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This post highlights the work of a presenter at TradeStation’s upcoming MasterClass learning session. It’s intended for educational purposes only and shouldn’t be interpreted as a trade recommendation.

While the S&P 500 is pushing new highs for the year, one respected technical analyst is starting to exit bullish positions.

Last week was “a weak-volume rally” that “may have been a short squeeze,” John Person of Person’s Planet said on today’s Morning Market Briefing. “For the first time all year, we have three different indicators lining up in sync showing divergence in the condition of the rally.”

John Person
John Person of Person’s Planet

First, the S&P 500 made a new high while the advance-decline line failed to make a new high. That kind of disparity may suggest that underlying strength is fading in the market.

On-balance volume, which uses turnover to anticipate direction, was the second indicator with divergence. Third, Person cited a similar reading from his proprietary indicator in the Trading App store.

Still, he urged patience before traders try to go short the S&P 500. In particular, Person’s looking for the index-tracking SPDR S&P 500 ETF (SPY) to close below $277.93 as a signal.

The S&P 500 has risen in 10 of the 13 weeks after Christmas, rebounding from an historically bearish fourth quarter. A lot of that rally came against the backdrop of corporate earnings season, and now investors face a quieter calendar in terms of potential catalysts.

Aside from the broader market, Person’s research suggested investors are favoring Wells Fargo (WFC) over other major financials like Bank of America (BAC). He also saw improving relative strength and volume trends in Morgan Stanley (MS).

It could be the “the time to shine for some of the asset managers, investment banks and some of the other banks,” he said.

S&P 500 chart showing divergence between index and On Balance Volume.
S&P 500 chart showing divergence between index and On Balance Volume.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.