SP500 Gasping at New Highs with Cautious Divergences

We’re seeing a familiar Hollywood script play out with price chugging to new highs as internals, volume, and momentum run the other way.

While this isn’t a panic signal, let’s at least highlight the extended divergences and “fumes” that continue to accompany a market creeping its way higher.

We’re seeing the S&P 500 Index stair-step its way through all-time highs (top chart) as Breadth ($ADD) and TICK – key Market Internals that reveal what’s going on behind the price – stairstep their way down.

It’s a classic “non-confirmation” or negative divergence between price and Market Internals (and the same is true with volume and momentum oscillators).

Once again, no this does not scream “run and hide and sell everything short” but it should give bulls/buyers a pause before leveraging their account long as they buy the news that stocks are at all-time highs.

We can zoom the perspective closer by seeing the 5-min intraday chart:

From July 22nd to present, price has crept its way from 1,975 to the current 1,900 and the index may throw one “last gasp” straight up into 2,000 to defy these divergences and continue the trend of money flow into the stock market.

Remember, price that breaks higher when logic and charts suggest otherwise is often fueled by short-sellers (bears) buying-back to cover losing positions when the market does the opposite of what they think it will.

Aggressive traders can position into unexpected breakouts and profit from the losses of those on the wrong side of price action (the same is true in reverse for a market that trades lower despite positive divergences).

For now, do note the divergences, do add some caution into your bullish trading, and don’t be surprised to see a pullback lower back toward 1,975 or lower should price break under the rising trendline near 1,987 currently.

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.

Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).