S&P 500 Forms “Cradle Buy” Signal

The moment Bulls have been anticipating has arrived:  The S&P 500 Index (^GSPC) officially formed a “Cradle Buy” signal with today’s bullish action (also known as a “Golden Cross”).  Let’s see this up close and discover what it might mean.

Before we get to the cradle, let’s look at the “Three Push” pattern, or Triple-Swing Positive Momentum Divergence that has set-in underneath price off of the October, November, and March lows.  The 3/10 (and most other momentum oscillators) made higher lows as price itself made lower lows - this is often indicative of at least an intermediate trend/price reversal so please be aware of this.

One non-confirmation of higher prices is that volume is trailing off as price continues to make higher highs off the March lows - this is concerning for the bulls, so wild, rampant bullishness is not warranted until volume begins to pick-up with these higher prices.

That being said, the Bulls got the Cradle Trade officially today, which occurs when the 20 EMA crosses above the 50 EMA to form a “Golden Cross,” and price comes back down to ‘test’ or ’sit on’ this level (I call it “Coming Back into the Cradle”) for possible support.

The Cradle is effective because it gives you the exact price point that - if a trend will reverse - it will most likely do so off this level.  In addition, if the price fails to hold the cradle (breaks beneath it), then your stop would be about the 800 level which would be very close underneath the EMA crossover point.

If we do actually get a trend reversal (and that’s looking more likely thanks to the Cradle), then you will achieve a much larger target (perhaps up to 1,000 or 1,100 in a few months) relative to your stop - therein lies your edge.

Needless to say, the formation of the EMA crossover and thus the “Cradle” is remarkably bullish and needs to be taken with seriousness.  There’s of course no guarantee the cradle will hold (it’s not infallible), but it is a price structure that - more times than not - leads to a price reversal, especially when it forms after such a powerful momentum divergence.

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