As I mentioned in my last post, I decided to dip my feet into a short trade because of the negative RSI divergences I've observed. Specifically, since January of 2018, every peak in the S&P (see green vertical lines in the image below) has corresponded to descending peaks in the RSI (see lower panel) -- this Friday's close and RSI reading was most notable. For this reason, I expect some weakness in the short-term.
With that said, given the "euphoric" price action, there's nothing preventing the market to break the downward RSI trend. In fact, if the market trades between 3050 and 3100, a meaningful breakout could occur. Until that time, as the market makes new highs while creating descending peaks in the RSI, I will add to my short position. Next week, I will be looking for the possibility of further deterioration in the RSI if the S&P exceeds 2964.15 during the week and closes below 2950.46 on Friday.
Remember, positioning for the long-term takes time -- investing isn't a binary activity.
Have a nice weekend!
