Watching for the Top

Signs to Watch for a Major Peak in Stocks and Impending Bear Market (Update)

Cris Sheridan on Financial Sense

Red Flag Number One (√)

… Divergence between the relative strength index (RSI) and the market (price). (In his chart, I notice that it only counts when this happens with the RSI is outside it 70% range and providing you include at least the last recent top – 2008 – in your chart time-frame.) Since this divergence can persist for months or years, we also look to two other technical red flags for possible signs of a market peak and impending bear market.

Red Flag Number Two

… A major crossover in the MACD (He uses the parameters, 25 slow, 26 fast, 9 smoothing)… . This is often used by technical analysts as a buy and sell signal. …

Red Flag Number Three

When a major line of support becomes resistance … . When the S&P 500 (price fails) to break back above its 12-month moving average. …

(The 60 day exponential moving average compared with channels and MACD may work well on a daily chart for SPY.)

(The 160 day simple moving average the SPY falls from its intermediate rebound channel on 1/4/2008 and again on 6/5/2008.)

(Red Flag Number Four)

(Comparing SPY and IWM you can see the positive price divergence peak on 4/30/7 and minimize on 3/1/9.)

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