ROC Divergence Warns: Pullback Extension, Will Support Hold at 5110?
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The Relative Oscillator (ROC) has proven its merit once again. Its recent divergence (decline) while the price itself was increasing served as a clear warning of a coming pullback. Based on historical analysis of similar overextensions, a visit to the 20-week moving average (20MA) – likely around 4970 next week– is brewing.
However, this pullback isn't expected to be immediate. The price could still bounce from current levels, as evidenced by similar overbought periods in the past 60 years. For a detailed analysis on this topic, be sure to check out the must-read article linked below:
To be fair, the previous week's pullback happened very quickly, a doji-shaped weekly candle with a lower low (generally a bullish sign) was in the chart until late Thursday. Despite this, Friday’s selloff changed completely the chart structure, and considering historical overbought conditions, it suggests a bearish continuation with the 20MA as the most likely target.
A deeper analysis is necessary for SPX alone, incorporating breadth indicators and the most critical chart for this week, which we'll explore next.
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