The longer the market trades in a range, the stronger the breakout is when it occurs. The S&P 500 has setup a very similar topping pattern this month as it did in August before a rapid and steep sell off.
As you can see the topping patterns are very similar including the Full Stochastics being overbought. However, this time, the RSI has been even more overbought than last; it is also showing signs of weakness.
On the inverse S&P 500 ETF (ProShares UltraShort S&P500), you can see divergence in the money flow index indicator. The pink lines in the end of August show the price declining while MFI is making a higher low. This precedes the August rally. The light blue lines show the price making lower lows while the MFI is making higher lows – predictive of another rally.
Below is the chart, click it to view a larger version:
Chart courtesy of StockCharts.com.
Today I purchased SPY puts, I will write a post when I sell them and report on profit/loss.