Positive Divergences Continue to Stack Up 12 comments
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Thursday, the market had a golden opportunity to breach crucial support on the glum news from General Electric (GE); notably, the market closed higher and at a positive closing level. As did GE.
Friday, again, the market had another opportunity to suffer devastation on the news from Research in Motion (RIMM). But already the market takes the ugly news in stride, as it continues to hold last Thursday's lows, and then some.
Dorsey Wright notes another positive divergence in a building bullish environment...
"The Small Cap area of the market moved back into Favored status in the DWA Dynamic Asset Level Investing [DALI] model. This is not surprising given the positive divergence we have seen from the S&P Smallcap 600 Index [SML] versus the S&P 500 Index [SPX]. In January the SML fell to 340 and the S&P 500 was at 1280. In July the market corrected again and SML also fell. However, this time the pullback brought it back to 344 yet the SPX was lower at 1220. Finally, the most recent correction in September took the SPX down to 1140, its lowest level this year, while the SML's correction didn't take it past the January lows with the SML only falling to 360. It is those asset classes, sectors, and stocks which make this type of higher bottoming pattern that turn out to be the leaders in the next market rally."
You know what I think...? Sooner or later, an increasing number of investors will recognize the market's change in character, and bid prices higher. You, fortunately, were apprised of this change even as the headlines screamed otherwise... and purchased.
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This article has 12 comments:
Pump it boys as I sit back and enjoy Russell 2000 get slaughtered and profit via my 6 figures stakes in Russell Ultra Short TWM.
www.geconsumerproducts...
Compact Fluorescent Lighting (CFLs) is only the beginning...
The most bearish divergence is that between eqities and short-term credit markets. Historically such divergences have always resolved in favor of the credit markets.
Finally, does anyone really think the S&P should trade at 23X trailing 4Q earnings when the economic wheels are falling off in the free world? In previous such crises, that multiple has dropped to single digits. And that's probably where we are going before this is over...