A Positive Divergence at Last

Technicians don’t crack snake eggs into a bowl and whip an elongated pinky fingernail through the yolk to make proclamations about the market’s future.

That would be kind of cool, but it probably wouldn’t be very effective.

Instead, they study the behavior of their fellow market participants to detect the possibility of turning points or meaningful change. There’s no mechanical equation or formula, which leads simpletons to the conclusion that “It doesn’t work.” But when used appropriately, TA can give you a good feel for how other people are acting and whether or not something different might be starting to happen.

Studying divergences is one way this is done. At turning points, it is not the headlines in the news that matter, but the way they’re being reacted to. Livermore understood this a century ago. It’s not magic.

Here’s a notable divergence worth pointing out, with positive implications for at least a short-term bounce: The NYSE Hi-Lo Index has reversed to the upside and is not confirming the new index lows for the NYSE Composite – a measure of all stocks that trade on the exchange. In other words, as the average falls, internally there are less stocks making new 52-week lows. This could be the beginning of a bottoming process – again, at least for the time being.

Something to consider.