Tuesday 24 October 2006

Dow Jones and NASDAQ Divergence

Divergence signals today. The Emini closed up 4 points at 1,384.75 on Tuesday. We got Trading Index (TRIN) and Dow versus NASDAQ divergences today. Have you been tracking the NASDAQ or just been focused on the record-breaking DOW?

Emini Dow Nasdaq Divergence Image

Divergence with low range and volume

The Emini opened down 2 points at 1,378.75 and then dipped during the morning to hit a low of 1,378.00. After consolidating the Emini rallied strongly during the last two hours of trade to hit a high of 1,385.50 and eventually close near the highs at 1,384.75. Both range and volume were below average at only 7.5 points and 900,000 contracts respectively.

We got two divergence signals today. The first was a Dow / NASDAQ divergence with the Dow closing up and the NASDAQ closing down. On the daily chart of the Emini above these divergences are shown with white dots. Red dots indicate the reverse and that the NASDAQ rose while the Dow fell. You can read more about these patterns and the histogram below the daily bars by checking out the Dow & NASDAQ topic on the right-hand side of this article.

The second divergence signal was a negative Trading Index (TRIN) reading with and up close in the Emini. This has also caused the Trading Index oscillator to turn down and signal a potential end to the short-term uptrend. Again, to read more about the Trading Index check out the category on the right-hand side of this article.

The rising uptrend has been so relentless over the last three weeks it is unlikely to end without a significant blow off move or market topping distribution. We also need another couple of the trend indicators to turn down too. Only one out of three at this stage.

Everybody’s waiting …

And don’t forget the Fed policy statement tomorrow - could cause some fun trading. Any trend line break on large volume closing below 1,375 might signal a reversal. Typically, however, I look for a “complete” move using the John Ehlers ‘Hilbert Sine Wave’ before such a trend reversal. This is equivalent to a final push or Elliott fifth wave, which we have yet to see.

Do a Google search for divergence and Dow or NASDAQ to find out more.