From the desk of Steve Strazza @Sstrazza
Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
How Dangerous Are These Divergences?
Let’s play a little devil’s advocate. Do you know what a common characteristic of market tops is? Failed breakouts. We see them everywhere at significant peaks - just look back to February of last year, there were plenty of textbook examples. The Russell 2000 just printed a failed breakout and confirmed a bearish momentum divergence as price sliced below its February highs. Making matters worse, RSI couldn’t even register an overbought reading with the most recent highs.
So, how serious is this? While anything can happen and this could certainly be the beginning of a significant selloff, that’s not what the broader evidence suggests. This is likely a garden variety correction at worst. And after the recent performance, that would be completely normal. We continue to keep our eye on 216 as our tactical level. As long as we’re above it, there’s little cause for concern. On the other hand, if price violates that level things could get dicey and would likely warrant a more neutral outlook in the intermediate-term.
