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Market divergences and contradictions are two very different forces.
One points to market direction, the other points to chaos.
Right now, we’re dealing with the latter, and that’s not a positive thing.
Let’s start with a discussion of the first one.
Market divergence is when price action moves in a direction that is opposite a technical indicator.
For example, in this case, the price action of the SPDR S&P 500 ETF Trust (NYSEArca: SPY) is divergent to the short-term MACD indicator. This implies in both areas noted in the chart that the price action will move sideways or downward in the days ahead. This was the case from the end of November to the middle of December.
I love divergences… While not perfect, they consistently point out turns in the market.
Right now in the chart below, the divergence is acting as a warning to traders to not get too bullish on Monday’s rally just yet.
Speaking of Monday’s rally… sigh.
We now have market contradictions… right at a time when some clarity would be really helpful.
I’m talking about the price action of the first five days of the new year.
Many are aware of this helpful indicator that works pretty well to point out the direction of January… until it doesn’t.
You see, the different S&P 500 products are contradicting themselves…
Should we look at the S&P futures, the index itself, the equal-weighted RSP ETF, or the weighted SPY to measure the strength or weakness of the move?
“Stock Trader’s Almanac” posted that the first five days are going down in the 2024 record book as… NEGATIVE.
Since they are the creators of the indicator, we must heed.
To add insult to injury, we now have two negatives: A Santa rally failure and a first five days failure.
At this point, my thoughts are that we still end the year positive, but only slightly.
Here’s what sticks out to me right now: The Health Care (XLV) and Utilities (XLU) sectors. They are the strongest sectors so far this year. That’s interesting to me, given that XLU ranks as a flight-to-safety asset.
Think and win!
Celeste Lindman
Celeste Lindman Trading
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*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
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