RSI Confirming Bear Market Rally?

Although we closed higher Thursday, it was another downtrending day for the cash S&P500. While we continue to wait for final confirmation that the zigzag pattern is complete I want to point out another important technical point. Yesterday we discussed the sell signal on the daily chart. That signal came at an RSI value of 64. Connie Brown teaches that bear market rallies show resistance at this level.

Developments in the Daily Technicals

It was a downtrending day for the cash S&P500 on Wednesday. While we wait for confirmation that the zigzag pattern is complete I want to point out the latest technical development. A sell signal has been generated on the daily chart (shown) as the Composite Index (middle pane) diverged with the RSI (upper pane). This reinforces the idea that ”… the odds are very high that we saw the pattern complete at the May 2 high.”

Back in Time to see the Zigzag Complete?

When I last posted about a week ago focus was on the developing Zigzag pattern from the March 17 low. I wrote: “However, we must still wait for confirmation that the zigzag pattern is complete.” I now believe that the odds are very high that we saw the pattern complete at the May 2 high. A weak day today would go a long way in confirming that view.

And what happens after the zigzag? Again; the wave principle allows for two scenarios: An “x” wave or another corrective pattern. The former would not see the market decline below 1324 while the latter could retrace the move up from March 17 almost completely.