Divergences ARE Important

By: Marty Chenard | Tue, Jul 20, 2010
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Learn to look at Divergences ... they ARE important.

Today will be "Tip Day" where we discuss another important technical skill to acquire.

Today's topic is about Positive Divergences. Professional traders incorporate such divergences in their trading strategies, but newer traders often overlook Divergences or just haven't developed the eye for spotting them yet.

In any case, they are important because the larger the divergence, the greater the likelihood that the divergence will impact the market's direction.

For example, take a look at today's SPY chart that goes back to 2008. While observing this chart, pay particular attention to labels 1, 2, and 3. You can see that each had a Positive Divergence, and in each case the market reversed direction for some period of time.

While we have not done the proper research on this time-relationship yet, but there does seem to be a correlation between the amount of Divergence and how long the ensuing reversal lasts in time.

Labels 1 and 2 had small positive divergences, and their upside runs lasted one to one-and-a-half months. Label 3 showed a huge positive divergence and it triggered the new Bull market.

Now, we are at label 4. This is not a huge positive divergence, but none-the-less, we do have a positive divergence to pay attention to.

The smaller divergence may mean a smaller period of time for it to act out ... but, for now at this early stage, the question is whether there is enough of a divergence to act out or not?

[Note: The C-RSI is our zero based Relative Strength Index.]

C-RSI Relative Strength



Marty Chenard

Author: Marty Chenard

Marty Chenard
Asheville, NC 28805
Tel: 828-296-1200

Marty Chenard is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools and stock market models. As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL. He is an advanced technical analyst and not an investment advisor, nor a securities broker.

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