Watching closely this week to see if prices of the major indices close below their January highs and confirm the many bearish divergences we're seeing.
Although this would be a signal of near-term weakness, as long as the S&P is above 2,950 then structurally things are intact. pic.twitter.com/pFg1AiVU1I
— Tom Bruni, CMT (@BruniCharting) February 18, 2020
Today’s Chart of the Day was shared on Twitter by Tom Bruni (@BruniCharting). It’s a daily bar chart of the S&P 500 index with a 14-period RSI indicator below it. Tom highlights the bearish momentum divergence that has formed as price made a new high, while RSI failed to reach a new high. He emphasizes the importance of waiting for price to confirm this divergence by closing below the January highs. He adds, “although this would be a signal of near-term weakness, as long as S&P 500 is above 2,950, then structurally things are intact.” In other words, the index could fall as much as 12% from current levels while remaining in a primary uptrend. A correction of that magnitude would probably feel like the end of the world, given the relatively low volatility environment that market participants have enjoyed over the past few months. In reality, it wouldn’t cause much technical damage, and could actually be viewed as healthy for the market in the long term.