A Discounted View

At the moment, there may be some bullish divergence  emerging in the daily chart of the S&P 500 (SPX) and Russell 2000 (RUT). Divergence between a price and an oscillator can be a reliable harbinger of future price moves. Since the beginning of 2016 SPX has been in a strong, sustained downtrend. However, a pivot low was formed in the middle of January and now it appears as though another price pivot could be establishing itself in the beginning half of February. Granted, the price action year to date has formed a series of lower-lows which is often interpreted as a bearish sign. Yet, when there is bullish divergence in a price-based indicator it often leads to a swift reversal of prior price action. For example, in the chart below it can be seen how the price trend of SPX has diverged from that of two of its oscillators. That is, the oscillators have formed potential higher-highs since the beginning of 2016. This could be indicative of impending bullish price action in the...

After the August 2015 sell-off the broad-based indexes found support and pivoted higher before month-end. However, by the latter half of September 2015 more selling pressure came into the market pushing the price of the S&P 500 Index (SPX) down to a near retest of its August 2015 lows while moving the value of the Russell 2000 Index (RUT) to new lows.  Even though the price action of these two indexes differed, the behavior of each respective Moving Average Convergence Divergence (MACD) Indicator was the same. Specifically, both MACD’s formed a higher low in late September 2015 after the August 2015 low was formed. Given the aforementioned similarities, MACD conveyed a powerful underlying message. In the case of RUT we observe that divergence formed between the lows of the price and the lows of the MACD lines. That is, as RUT formed a lower-low by the end of September 2015 its MACD was making a higher-low which is indicative of future price strength. MACD is categorized as a ...