The SPY Signaled a Downturn Valentine’s Day

Looking for some stronger reinforcement of your view that the market was signalling a turn lower weeks ago? Look to the S&P 500. Not the one that was rising that whole time and at worst leveled until it fell yesterday, but the Equal Weighted Index, $RSP, put out in ETF form from Rydex.

By February 8 the Moving Average Convergence Divergence (MACD) indicator on the $RSP had started to trend down. On Valentine’s Day it turned negative, creating a negative divergence, and has been moving lower since. The Relative Strength Index (RSI) also started making a series of lower highs and lower lows. Finally Monday it closed below it’s 50 day Simple Moving Average (SMA) for the first time since December 19th. Was it giving signals of a turn lower? Sure. Did other indicators also point lower? Yes.

Were there also charts and indicators that suggested more upside? Of course. This is another tool to have in your kit to create a mosaic of the broad market and create your own broad view, with all possible outcomes. It certainly tells you that the tailwind of an uptrend may be changing. Whether you follow this aspect of breadth or not it should give you valuable information about how to adapt your risk management for changes in the market.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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