The latest bearish meme is the focus on market divergences. The idea is that a "healthy" market shows confirmation from various sectors. The Dow made a new record high this week, which does not really reflect the overall market. Many smaller stocks have experienced a significant decline from their highs.
In a week that will have fewer earnings stories and less important economic data, I expect many to ask, "Should we be worried about divergences?"
Prior Theme Recap
Last week I expected a focus on the Ukraine crisis. My main idea is that it is important for citizens but not really a market crisis. The muted impact from news last week provided some support for my thesis, although there were clearly some intra-day moves attributed to news from the region. The impact on Russian stocks is certainly important.
It proved not to be a primary theme, but the idea of fading this "news" is still sound.
Forecasting the theme is an exercise in planning and being prepared. Readers are invited to play along with the "theme forecast." I spend a lot of time on it each week. It helps to prepare your game plan for the week ahead, and it is not as easy as you might think.
Naturally we would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.
This Week's Theme
What is a divergence and should we worry about it?
Josh Brown cites Peter Boockvar who warns as follows:
You don't typically want to see large caps struggling at recent highs with less underlying participation by individual stocks - narrowing of participation at highs is how tops are formed. You also don't typically want to see new all-time highs for the S&P
