Three Divergences Demanding The Stock Bulls' Attention

Tyler Durden's picture

Longer-term divergences tend to provide the most concerning backdrop for the current relative strength of stocks. BofAML's technical research analyst Mary Ann Bartels is concerned that the major negative divergence between market breadth and the S&P 500 indicates a risk of a deep correction in 2013. As she notes: "Although the advance-decline lines have moved up with the US equity market since mid November, bearish divergences remain in place for the S&P 500 and NYSE Stocks advance-decline. This is an important negative divergence as we enter 2013." Add to that the divergence between NYSE net new highs and the divergence with Transports and markets face a triple threat.

S&P 500 vs NYSE Advance-Decline line divergence...


S&P 500 vs NYSE net new highs divergence...


and the S&P Transportation index is significant underperforming the Index...


and one more thought - 2013 is the first year of a new Presidential Cycle. The first quarter of the first year of the cycle is down 1.33% on average, but the weakest period of the Presidential Cycle is from a July/August Year 1 peak to a September Year 2 (mid-term election year) low. The average decline over this period is 4.31%.


Chart: BofAML

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q99x2's picture

And to top it off GS just started to tell clients to buy stocks instead of bonds.

Iam Yue2's picture

Turnaround Tuesday and Quadruple Witching Friday should be enough to shake the bulls out of the trees this week.

The notion that "Boehner crosses the Rubicon" when what he has clearly done is stick a toe in the water, is farcical.


Dr. Engali's picture

Must .. hold .. together .....for ......ten ..... more .... days....

Spastica Rex's picture

Given what it is, why would the "Market" ever go down for any significant length of time?

gatorontheloose's picture

Someone please explain the near historic volume in market ETFs SPY, DIA & IWM ??   


SPY options volume is copletely out of control!!  300,000 contracts at 150 dec ?


StoleYourMoney's picture

The market will decline, as soon as the algos allow it.

Glass Seagull's picture



[Ben puts down his copy of Technical Analysis of Stocks & Commodities magazine and says] 

"We're going to need a bigger printer."

J 457's picture

And GS said 1,250 SPX by year-end 2012 and only missed by 185 pts.  Its all guess work anymore and fundamentals have left the market.  DPZ at $42.50 and RYL at $35.60.  Its laughable.  But once the FED starts to exit she'll go down.  That is unless bond sellers flood to equities?

SilverMoneyBags's picture

Bond sellers still need buyers. Who will be buying?

GoldbugVariation's picture

The "market" is mostly hedge funds.  A lot of them are long stocks, on margin.  They can turn on a dime, and they will turn as soon as they think the trend is changing.  That is what will make stocks go down.  See APPL.

SilverMoneyBags's picture

The only divergence is from reality.

Luke 21's picture

Great Post. Thanks.

one_fell_swoop's picture

Who is making these charts?? What is the relevance of an "uptrend" line in the ratio of Dow transports to SPX?  There is none.  This is utter nonsense.