These S&P Charts Are Flashing a Trifecta of Sell Signals

There is a coordination of bearish technical signals on the S&P 500 chart across multiple timeframes. This periodic alignment of negative indications on the daily, weekly and monthly charts suggest the index is headed lower over the longer term and that the start of the decline may already be underway.

The daily chart shows the S&P recently retesting the zone of resistance that has been defined by a series of multi-year lower highs on the index and then reversing and breaking below an uptrend line drawn off this year's February and April lows. The relative strength index is moving below its centerline, and moving average convergence/divergence is making a lower high in bearish divergence to the recent higher high in the index. These indications reflect deteriorating internal price momentum and short-term trend. Chaikin money flow crossed below its 21-period signal average at the beginning of the month and has continued to track lower, and it suggests distribution into this rally high.

On weekly chart, the index formed a series of long lower tail hammer candles over the two-year period shown that have defined important lows, and the reverse is also true with a series of high wick candles delineating the boundary of the resistance zone. In May 2015 a small high wick narrow opening and closing range candle marked the historic high in the index. In November that year, a second high wick candle made a lower high. 

Two weeks ago, there was a third high wick lower high, and this particular candle was also a component of a key reversal formation. The eveningstar formation is a three-period reversal pattern that is formed by a large white candle, which is followed by a narrow opening and closing and closing range "doji" candle and completed by a large down candle. It represents a transition in investor sentiment from bullishness to bearishness and is often seen at important market highs. It is made more significant because of its location at a retest of the resistance zone.

Bollinger bandwidth has been expanding, and the bandwidth indicator is at its highest reading in over four years, with the implication being that the index will revert in a potentially volatile move.

There is obvious negative candle action and price and money flow momentum on the daily and weekly charts, but the most concerning bearish signal is on the monthly chart.

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The Coppock curve is a rarely seen indicator designed originally to be used on monthly charts to call major turns in the markets. It was was first published in Barron's in 1962 by economist "Sedge" Edwin Coppock and is calculated as a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change for the index. Coppock used the indicator to identify buying opportunities when it moved from negative territory to positive territory, and although he did not use it for sell signals, many technical analysts consider a cross from positive to negative territory as a bearish signal.

The Coppock Curve has crossed below its centerline for the first time since early 2008. Additionally, the relative strength index and Chaikin money flow on this time frame have been tracking below their declining 21-period averages, showing another coordination of deteriorating positive price and money flow momentum.

This article is commentary by an independent contributor. At the time of publication, the author was long the SDS.