I’m not a big fan of pointing out negative divergences because in a bull market it really doesn’t pay to take action based on them. Look how many negative divergence articles we see on a weekly basis, tons, if you took action on them you are probably are not so happy right now. And I know they read well and are sexy and make all the sense in the world. However, negative divergences work best in markets that are in a correction, this market has not been in a correction in a long time. Positive divergences work a whole lot better than negative divergences, that is a fact.
Pre 2009 if you got this same playbook we have now you can go out there and short the indices hand over fist knowing that there was a huge chance that the indices will catch up to stocks on the downside because stocks always lead. This was the old play book. This is probably why there is a love affair with writing about negative divergence along with the fact that every body wants to make a name for themselves by calling a top. However every now and then the divergence gets so blatant that it is worth talking about and perhaps even playing it. I’ve blogged about blatant divergence and you can catch up here to see what I mean; Blatant Divergence Is Upon Us Again.
Last night after the close I saw one stat that made laugh out loud, shake my head and say something has to give. Its a stat from Pradeep Bonde’s market monitor; stocks up 25% for the quarter and stocks down 25% for the quarter. It just so happens that with Nasdaq, Dow Jones, SP500, pretty much at ALL TIME HIGHS, and the $RUTjust down a little we currently have MORE STOCKS DOWN 25% FOR THE QUARTER THAN STOCKS UP 25% FOR THE QUARTER, 411 up 25% vs 429 down 25% for the quarter (rolling 65 days).
Now, the something has to give does not have to be negative. I think we have to be open minded to the fact that this blatant divergence could right itself by having individual stocks catch up to the indices, this is something that I don’t think anyone is talking about that is a possibility. I’m I banking on this, no. I’ve been harping this whole month how the performance of my 5 day rolling watch-list has been lackluster with market at highs, and now you can see why, stocks have no mojo. This can change in a heartbeat, but for now take a look at this chart.
Click to enlarge
P.S. I’m not complaining how the market is rigged, and there is no alpha etc… like the hedgefund manager who blamed his performance on the market. I’m up for the month, quarter, last 2 quarters etc…and I have a huge lead over the last 12-24 months, I don’t use huge lightly.
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