This Classic Technical Signal Points to Correction Ahead – Fat Tail Daily

In today’s Closing Bell, the S&P 500 has confirmed bearish divergence on the weekly chart, which hints that more selling could erupt in the short-term. In today’s Closing Bell video Murray explains how to spot bearish divergence and an opportunity to take advantage of it.

In today’s Closing Bell video I will teach you about a classic technical signal known as bearish divergence that has a great record of tipping trades with solid risk/reward and a high strike rate.

But it has to be remembered that a great trading signal will probably get it right 50% of the time or perhaps a bit more for the best ones.

It is the amount you can make versus the amount that you risk that can turn a flip of the coin into a money spinner.

And the bearish divergence signal can be good because it gets you into a trade very early as markets start to turn down.

What that means is that you don’t need to risk much to find out if you’re right. If the trade does go your way the upside can be exciting because you have entered the position early in the move and if a sell-off does eventuate you can potentially reap the benefits quickly.

But at the end of the day you have to be prepared to trade the signal over and over again so that the odds of success and risk/reward play out.

The bearish divergence is on the weekly chart in the S&P 500, which hints that in the short-term odds are fairly high that we see more downside.

That doesn’t change the long-term bullish picture in the S&P 500 at all and I need to make that point clear. The S&P 500 has to drop over 10% from where it is now to threaten the currently bullish conditions, and this correction I’m predicting, could be short lived and provide a good buying opportunity in due course.

Of course, there are never any guarantees here, investing in any market carries risk.

Whether or not this signal ends up being correct is beyond my control and I will leave it up to the trading gods to decide.

But if you wanted to understand how to hunt for bearish divergence trades and where you should place stop losses to manage your risk check out today’s Closing Bell video above.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Murray Dawes is our resident expert trader and portfolio manager. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today, his mission is to help ordinary Aussie investors make profitable investments, while expertly managing risk.

He uses his proprietary system for his more conversative and longer-term-focused service Retirement Trader…and then applies the same system to the ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).