3 Divergences To Watch

JC Parets
March 27, 2024

There are 3 big divergences right now that I think we want to keep a close eye on.

The first ones comes straight from Papa Dow.

We're looking at a classic Dow Theory Divergence between the Dow Jones Industrial Average and Dow Jones Transportation Average.

We've seen these sorts of things before major market tops. You saw it in 2000, you saw it in 2008, you saw it in 2015 and you saw it in 2020.

In this particular case, you're seeing new highs from the Dow Industrials but lower highs in the Transports:

Another interesting one comes from Small-cap stocks.

The Russell2000 Index has no requirements for companies to earn any money. They made slightly new highs, although one could argue they are still in this range.

But the S&P600 Index, which requires a track record of earnings in order to be included, never made a new high.

Finally, and arguably the most important change in the dynamics in this market, is High Beta underperforming Low Volatility.

The ratio between these two groups of stocks tends to move with the S&P500.

But this year, while the S&P500 has gone on to make new highs, the ratio between High Beta and Low Volatility has not:

For me, these 3 divergences are front and center.

We'll be discussing these and what they mean for current markets this Monday during our LIVE Monthly Strategy Session.

ASC Premium Members can register for that here.

See you then!

JC

 

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