As much as we would all like for a top or bottom to be quick it never really plays out like that. Major turning points in the markets take weeks or months to form, and they is normally some type of divergence involved. Back in Feb-Mar 08′ and again in late 08′, early 09′, you could see the % of stocks above the 50day moving average hitting a bottom and forming positive divergence, while the markets continued to trend lower. I drew a “line in the sand” connecting those lows and the failure of this trendline to be broken sets the stage for a rally.

We could be seeing the same thing happening here over a period of months, with a series of lower highs as the markets continue to┬ámake new highs. I’m still trading this market on the long side, however it’s important to be away of this chart and take notice if it’s rejected here or if it breaks out.

Nasd

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3 Responses to “Noteworthy Divergence”

  1. Me XMan Says:

    What’s next SPX target?

  2. zentrader.ca - Stock Market Blog » Blog Archive » Short The Rallies Says:

    […] we’ve had 4 distribution days (volume on down days exceeded the previous day). I posted this chart on Aug. 5th, and stated that if this rally if going to move forward, it would have to bust through […]

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