CME Group (CME) has done well in recent quarters and years, including the early July breakout over resistance around $98 to $100. What's ahead for this marketplace?
In this daily chart of CME, above, we can see the sideways price action from late September 2015 until June of this year. Throughout this sideways period of price action, the On-Balance-Volume (OBV) line was gently rising -- suggesting that beneath the surface buyers of CME were being more aggressive in accumulating shares. Recently, the OBV line has dipped -- suggesting that traders are reducing their positions. Momentum has been diverging since July -- as prices moved higher the momentum study moved lower.
In this three-year weekly chart of CME, above, we can see an 18-month consolidation pattern where there were several rally failures at $100. When CME finally broke above the resistance around $100, it made the $100 area support (role reversal). Notice how the OBV line has been rising steadily for the past three years.
The weekly Moving Average Convergence Divergence (MACD) oscillator is above the zero line (bullish territory) but it has begun to narrow towards a liquidate-longs sell signal.
Bottom line: CME is correcting its rally from $93 to $110. Prices could retreat to $102 -- or perhaps lower. Volume on this pullback should be light and constructive, so we want to look for a place to go long. If volume starts to increase on down days, we would want to reappraise the situation as it could signal something other/bigger than a correction.