RSI Divergence on S&P Futures

As soon as I started charting and prepping for tomorrow, I noticed that there is RSI divergence on the daily /ES (S&P E-mini) chart. Not only that, but there is declining volume as well. And it doesn’t end there… we are at all-time highs while all this is happening.

Take a look at this chart I made on Trading View.

Notice how the black line at the top of the chart, and the black line in the RSI section are moving in opposite directions? That’s called divergence. And when there is divergence on a large time frame such as the daily, and when that divergence is happening with a momentum indicator like the RSI (Relative Strength Index), it is definitely worth keeping an eye on.

The RSI is a momentum indicator, so it is showing us the direction of the overall trend which has been climbing for quite some time. But it started to crest a few days ago. Notice how it never reached as high as the crest before it? That’s an ominous sign. And that is the divergence, as the S&P has continued to climb through it all.

Not only that, but notice how long the volume has been declining? This is implying there is relatively no buyers left in this market. This is implying that there might be some exhaustion on the buy side.

Sometimes, but certainly NOT always, divergence tends to predict near term movement. When the divergence on the RSI is to the downside, the stock tends to move down eventually. The opposite happens when there is divergence to the upside on the RSI. However, it does not ALWAYS work out this way.

I just wanted to point this out. It is a big bearish technical indication, and is worth keeping an eye on. We are at all-time highs, which makes it even more important to look at. You have to understand that this market is having a very tough time deciding if it wants to break through to new highs. Yes, we keep making new highs, but we can’t seem to close at new highs – there is a difference.

I will be watching my positions closely tomorrow. Right now I am pretty well balanced with my option positions. I have just a slight positive delta, which I may re-balance to a slightly negative delta depending no the open tomorrow morning.

Good luck to all this week! May we all profit.

PETROCHINA DISCOVERS NEW AND “PROVEN” GAS DEPOSIT

Petrochina announced on Sunday that they have found a new and VERY large gas deposit. If true, this means natural gas prices will fall… in return, inverse funds like DGAZ (pictured in my tradingview.com chart) will rise. DGAZ is a 3X inverse of natural gas.

Notice, on the chart DGAZ bounced off pretty good support, and gapped up last Friday. Usually, gaps get filled. But, when they get filled is anyone’s guess. However, it looks like this gap was a “retest” gap, and already came back down to retest. I will be watching natural gas at futures open this morning. I may enter a long position on DGAZ, or short /NG.

Remember… DGAZ is an inverse ETF. Inverse funds profit when the underlying goes down, and vice versa when the underlying goes up. Natural Gas futures (/NG) is not an inverse. /NG is the actual natural gas price.

OIL IS GOING TO MOVE HIGHER

If you follow market news, or even political news, you will know what happened in Saudi Arabia this weekend – a drone strike on a Saudi Aramco oil refinery. This will cause oil futures to gap at open this evening, when the futures market opens at 6 p.m. eastern time.

What does this mean? Simply put, it means a supply reduction. What happens when supply is reduced? The price of oil goes up … it’s supply and demand. Oil trades higher when supply is low, and it trades lower when supply is high. By some estimates, this strike cut out half of Saudi Arabia’s oil production; that’s significant.

I’m guessing this will be a ‘gap n go’ and there won’t be much of a pull back. However, I will be watching it closely, as this will be a great opportunity to make a few bucks on the big move up. My plan is to simply buy into whatever little pullback happens after the initial jump. But, if it doesn’t look like it will pull back at all, I will enter on some sort of higher-high higher-close strategy.

As I always say: ALWAYS DO OUR OWN RESEARCH. IF YOU ARE UNSURE, SEEK PROFESSIONAL GUIDANCE.