Short-term support for S&P 500 but long-term bearish

By Colin Twiggs
October 1st, 2013 3:00 am EDT (5:00 pm AET)

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The September quarter-end often heralds a correction as fund managers re-balance their portfolios and shed under-performing stocks.

The S&P 500 is testing support at the May high of 1675 on the daily chart. The long tail on Monday's candle indicates short-term buying support, but bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure. Breach of support and the (secondary) rising trendline would signal a test of primary support at 1625.

S&P 500

Selling pressure is also evident on the weekly chart, where a similar divergence warns of a primary reversal. This is a relatively weak signal, with 13-week Twiggs Money Flow elevated well above zero and primary support some way above the long-term rising trendline. Failure of support at 1625 would signal a reversal, but it may be prudent to wait for confirmation from the long-term trendline or other major indexes.

S&P 500

* Target calculation: 1700 + ( 1700 - 1550 ) = 1850

VIX crossed to above 15, but still indicates relatively low market risk.

VIX Index

Dow Jones Industrial Average broke its (secondary) rising trendline, signaling a test of primary support at 14800. Bearish divergence on 13-week Twiggs Money Flow warns of a reversal and breach of 14800 would confirm. Recovery above 15660 is unlikely, but would indicate a fresh advance.

Dow Jones Industrial Average

I don't think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow. This seems to be part of the process of evolution and growth of a trader.

~ Ed Seykota