NEGATIVE DIVERGENCES ABOUND
Courtesy of The Pragmatic Capitalist
This week’s technical outlook comes courtesy of Decision Point:
While the S&P 500 had managed to squeeze slightly above the ascending wedge that has contained the index for several months, this week it dropped back below the support and it is currently challenging the bottom of the wedge. The wedge has not resolved decisively in either direction, and it is possible that there will be no clear resolution. By that I mean the wedge is so narrow that the price index could continue to drift higher, lower, or sideways to where it will have exited the wedge without a clear resolution. If so, we will ignore the wedge and look for something else to provide some clarity.
I am still of the opinion that we will see some kind of downside correction because of the abundance of negative divergences to be found on our indicator charts. The first is the gradually contracting volume seen on the chart below.
The next chart shows the three indicators of our OBV (On-Balance Volume) suite with divergences clearly marked.
Finally, we have the new highs and new lows chart. Again, you can see the negative divergence over the contraction of new highs; however, this chart gives us reason to believe that the internal problems may not be too serious. Note that there have been virtually no new lows for many months, and, without an
Bottom Line: The abundance of negative divergences keeps waving the caution flag for a correction; however, the complete lack of new lows indicates that we are only witnessing cyclical weakness during an ongoing bull