Friday, June 1, 2012

Market update

We are seeing price-RSI positive divergence on the daily SPX chart. For this divergence to convert to a market rally, the divergence must hold. Which means RSI should not post a lower low than the previous low marked on 05/18. If we see a bottom on RSI here, which is likely, the market has bottomed for the short term. Previous price low was 1291, so clearing 1291 higher would mean a good rally. There are 2 approaches: 1, Buy here or lower - with a stop at 1268. With this approach, you could lose if the lower low comes at 1200 (example). 2, Buy on a confirmation of the next rally with $SPX clearing 1292. Either way, stops and risk management is important.

Giving confidence to this approach is the support of the trendline from the 2011 top.

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