Bristol Myers Squibb BMY Teaches us the Value Spotting Extended Negative Divergences

Jan 20, 2017: 6:36 PM CST

If you’ve ever wondered why we chart momentum and volume along with price, BMY tells us why.

Today shares literally collapsed back to the lows, down from the prior swing highs.

Wouldn’t it have been nice to know this was a distinct possibility?

Divergences warned us many days in advance.

Let’s study this example from this  reversal and learn to spot it in the future – and be ready.

We’re seeing Bristol Myers Squibb (BMY) reverse UP away from the $50.00 level in October to peak at $60.00 as we began 2017.

Look closely at the swing highs in November, December, and January.

If you understand divergences, you’ll know that something is very wrong that price isn’t showing.

With price at new swing highs, comfortably above the 20 day EMA, things are severely deteriorating beneath the (price) surface.

Namely volume has been weakening since November along with momentum (both are trending lower).

The chart above shows us the collapse back to $50.00 but let’s zoom-in on the divergences for clarity:

This time we’re just seeing the rally from November to January 19th BEFORE the collapse back to $50.00.

For perspective, pretend you’re seeing this chart as it was on January 19th, not knowing the next day will result in a collapse under the $52.00 level.

Your “message from the future” came from lengthy negative divergences in VOLUME and MOMENTUM.

As price pushed up to THREE new swing highs (November, then December and finally January), you can see that volume and momentum were weaker (lower) than their respective November peaks.

It’s a sign that the steam is running out and a reversal is becoming MORE likely as the situation continues.

Finally, like a rubber band stretched to its peak, price “snaps back” violently, working off the divergence.

The result here is a collapse (on high bearish/sell volume) from $60.50 to $57.00 in a single session.

Price continued to fall from $57.00 to the $55.50 level… and then today under $49.00 per share.

Study the message from volume and momentum alongside price – they reveal hidden secrets price won’t tell you.

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Corey Rosenbloom, CMT
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1 Comment

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