4 Bearish Divergences For "Different This Time" Believers

Tyler Durden's picture

As stocks press back towards all-time highs amid a US government shutdown, extreme weakness in earnings pre-announcements, slower-than-expected China growth, Europe's recovery in doubt, and a looming debt-ceiling debate in the US, we look at four 'big picture' charts of dismal divergences that suggest it's not different this time at all...


Via BofAML,

There is a negative divergence in New 52-Week Highs...


Triple bearish divergence on the % of NYSE stocks above 200-day MAs

Below 60% on the % of NYSE stocks above 200-day MAs would provide a warning for US equities

The % of NYSE stocks above their 200-day moving averages has a strong bearish divergence similar to the divergences that preceded pullbacks in mid 2010 and mid to late 2011. This points to diminishing momentum for market breadth and preceded pullbacks in the range of 15%-20% in 2010 and 2011.


Both daily and weekly MACD and RSI suggested weaker price momentum as the S&P 500 moved to new highs above 1700 in early August and mid September. This is corroborating the bearish divergence on the percentage of NYSE stocks above 200-day moving averages. The last time both weekly and daily momentum had bearish divergences was in mid 2011. In 2011 the S&P 500 corrected nearly 20% from an April peak to an October low.

Potential triple bearish divergences for weekly MACD & RSI. The S&P 500 has three higher highs, while weekly MACD and RSI remain in downtrends off those S&P 500 highs – this is a potential triple bearish divergence. Weekly MACD has not yet reversed its sell signal.


Margin Debt still contrarian bearish

Using closing basis monthly data, peaks in NYSE margin debt preceded peaks in the S&P 500 in 2007 and 2000. The March 2000 peak in NYSE margin debt of $278.5m preceded the August 2000 monthly closing price peak in the S&P 500 at 1517.68. The July 2007 margin debt peak of $381.4m preceded the October 2007 monthly closing price peak of 1549.38 for the S&P 500. Margin debt reached a record high of $384.4m in April and the S&P 500 continued to rally into July, August, and September. This is a similar set up to 2007 and 2000.

Bonus Chart - Margin debt: the long-term overlay

Going back to January 1959, margin debt and the S&P 500 have moved together for the most part. But leverage is a double edge sword and can exacerbate sell-offs, leading to deeper than expected market pullbacks.

Still think the "market" is driven by earnings or fundamentals? or just leverage and marginal credit expansion (shadow banking repo... etc.)?

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BlackChicken's picture

This must be bullish right?

Xibalba's picture

nuthin' 1.1 Trillion a year can't plug

max2205's picture

Ben don't need no stinking charts....maybe this is why he got a push from Goldman to cancel the taper


If Ben wasn't printing I'd call the top in if we close hard red Wednesday. ...what do I know

CheapBastard's picture

...you must mnean 1.1 Trillion a month....

NOTaREALmerican's picture

Those investing in Forever Stamps are not affected.

Number 156's picture

Anybody think the Fed has the balls to taper?

BullyBearish's picture

So, so...how long can they keep this up, what with $85B/month forever at their disposable

NOTaREALmerican's picture

Re;  how long can they keep this up

Forever.  Nothing in Merica can stop them.     It has to be outsiders.   Evil-doers who hate Merica, and everything it stands for.

But, evil-doers who won't be screwed worse if Merican does stop doing what it stands for.

So, that only leaves...  San Marino and the space aliens.  

bank guy in Brussels's picture

Somehow I never tire of a good doomer post backed by charts ...

Like watching a disaster movie waiting for the big explosion

Many years ago was watching the first showing on telly of that nuclear war catastrophe film, 'The Day After', with a bunch of other people drinking beers ...

The whole room cheered as the armageddon missiles launched

NOTaREALmerican's picture

Re;  The whole room cheered as the armageddon missiles launched

HA!  Humans are funny creatures.   Especially when in packs.

Cdad's picture

Just lol...on that last bonus chart.  Quick...to the Bernanke mobile! 

asteroids's picture

Study carefully and remember. It  sometimes takes months for divergences to pan out.

Motorhead's picture

But it might be different this time.

NDXTrader's picture

I just don't think historical charts matter much when the currency is being debased in unprecedented ways. It will make the inevitable collapse bigger, but comparing this to any other market is apples and oranges. So now they've already named the new hopium - the "Fed Flare" - the hope that they will increase QE to "help" us cope with the shutdown

Swarmee's picture

Many of the comparison charts are from 2010/2011 divergences, during other periods when various QEs were in effect. There is presumably more similarity there to today's markets than anything pre-2007....

Motorhead's picture

Undoubtedly due to the weather.  Or, Goldman Sachs's entry on to the Dow 30.  Or, it's Bush's fault.

q99x2's picture

You have the globalists losing control of Washington D.C. and the United States of America. You have all the other repercussions of out of control scandals. You have the economy imploding.

But this time the FEDs have computer software controlling Stock Market Indexes so this time is different. Until the FEDs decide to cut their algos and activate DHS' and FEMAs'attack against the United States of America BTFD.

Pig Circus's picture

How dare you suggest the last two minutes of today's market action was computer driven by the Fed.

Have you no decency young man?

SilverMoney1's picture

RSI is still nesting form the bottom.


Another high to go.

Kreditanstalt's picture

Nothing is going to happen to this stock market rally until the credit situation cracks...and the Fed and government have that one covered.  This insane rally could go another year or two...