The big divergence between the S&P 500 and the Nasdaq has become too big to ignore as just another temporary divergence in my opinion.
Check out a 2 hour chart of the S&P 500 and the Nasdaq over the last 5 trading days:
You can see that the Nasdaq formed a higher high, while the S&P 500 formed a lower high. Keep in mind, I'm just using the last 5 trading days as an example of the divergence between the S&P 500 and the Nasdaq. This divergence has been going on since the beginning of 2014.
Stock Market at Major 1850 Resistance
The S&P 500 is currently testing 1850 resistance. This is a major psychological resistance area. The 1850 resistance level has been tested three times over the last three months. Each time, the S&P 500 failed to break through this level. A triple top is a major Bear pattern that could form if the S&P 500 fails to break through this level next week.
The divergence between the S&P 500 and the Nasdaq seems troubling with gold being in a strong uptrend:
Gold traditionally does well when the stock market does not. There are periods where gold and the stock market go up at the same time but as a general rule, gold being in a strong uptrend is a bearish signal for the stock market.
Strong bull markets, like the kind we've been in for the last 5 years, usually have a convergence of the major indices and not a divergence. A divergence suggests a differing of opinion between institutional traders and money managers that account for about 70% of market action on a given day.
In this week's stock market forecast video, I talk about the divergence between the S&P 500 and the Nasdaq and why I think gold is a good buy for the first time in years.