Here’s the rule of thumb with these things:
Just because there’s no divergence in the A/D line doesn’t mean the market can’t correct. But if there’s a divergence in the A/D line, you better pay attention.
That’s what’s happening here.
Remember, at first it was just the Nasdaq Advance-Decline line diverging. This one peaked back in early February. Notice how we had a divergence before the COVID crash as well:
But now we’re also see this divergence in the NYSE Advance-Decline line. In this case, we want to make sure to identify the “Common Stocks Only” data, because the NYSE has a ton of bond proxies and closed end funds that skew the data, if you’re not careful. If we want to observe what stocks are doing, let’s just look at stocks, right?
Here’s another divergence to add to your list, just like the one right before COVID:
If it was just one divergence, that would be one thing.
But we’re seeing it across the intermarket landscape, list of new highs (or lack thereof) and in the momentum data.
It’s divergence city from where I’m sitting.
So what are we doing about it?
We discussed it all at length on last night’s call.
Check it out and let me know what you think.