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Tuesday, May 8, 2012

Positive breadth divergence

I have not shown this chart before, but tonight it is pretty interesting.  This is a 10 DMA of the NYSE advancing and declining stocks in the top panel.  The 10 MA of the advancing and declining volume in the middle panel.  Check out this chart versus SPX.

The first circled area was the first low.  The 10 DMA of declining stocks was really up there.  Today it is not even above the advancing stock MA.  This is quite a significant positive divergence.  These do not happen all that often at lows.  The fear factor in the market is usually pretty strong.  Take a look at this chart from June of last year.

In the circled areas you can see SPX testing lows on a positive breadth configuration.  Notice the sharp bounce that followed.  The current situation is a little different as the retest was over a much longer period.
The result may be different, but if this market turns up, it could do so pretty strongly.  Watch the shorts closely.


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