RSI DIVERGENCE SUCCESS

The RSI divergence signal has been very accurate. The divergence signal was confirmed on October 29. The market did not immediately rebound, but there was strong evidence the market has stabilised. The rebound developed strongly on November 10. The RSI divergence indicator is not used to predict events in the future. The indicator identifies a market condition where there is a high probability a trend change will develop.

The current rally has three important resistance barriers that will prevent this rally from developing into a long term trend change. The first barrier is the historical resistance level near 2000. This was a support area. It is now a resistance level.

The second barrier is the value of the long term Guppy Multiple Moving Average. The upper edge of this indicator is near 2100. The rally must develop sufficient strength to move through the group of long term moving averages. This group is widely separated and this slows the momentum of the rally.

The third barrier is the value of fan trend line 4. At the moment we estimate the position of fan trend line 4. The position is confirmed when the index develops a rally peak and retreat pattern. The rally peak is used to confirm the position of fan trend line 4. There is a high probability the position of fan trend line 4 will be near the 2000 resistance level.

There is a high probability the market will retreat from near 2000. There is a strong probability the market will retest the support area near 1750. Although we use the exact figure of 1750 in reality this is a support area and not an exact support line. The market will continue to test for support in this area. The market is “"Crossing the river by feeling for stones."

A change to a new strong market uptrend will not develop quickly. It would be unusual to see a “V” shaped recovery. There is a high probability the market will continue to develop a consolidation pattern. The consolidation will develop first between 1750 and 2000. As the consolidation is more successful the consolidation area will move between 2000 and 3000. This will include short term rallies.



A successful move above the value of fan trend line 4 will allow the construction of fan trend line 5. There is a high probability that a breakout from fan trend line 5 will signal the start of a new long term uptrend. The position of fan trend line 5 cannot be calculated until the first rally above fan trend line 4 has been completed.

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.