Diverging Indices = Higher?

5 Feb

As we take a look at the top line figures (S/P, DOW, NASDAQ) we see an interesting divergence. Let’s examine the price action and the Stochastic Indicator. All charts are daily candlesticks.

The S/P is forming symmetrical triangle with a Stochastic turning higher. Volume has decreased over the past week and the apex of the triangle is tightening.
The Dow is creating a descending triangle, in the context of a sideways market, and its Stochastic is forming a triangle with a lower high which is turning higher, forming a higher low.
The NASDAQ on the other hand has put in a higher low on the dailies and is about to break out to make a new high, forming a small up channel. The NASDAQ has been the strongest index over the past few weeks and we see a small increase in volume these past few days as it makes its way higher.
For the rest of the week and week to come, look to the NASDAQ to lead the market higher with confirming triangle breaks on the S/P and Dow. However, If we break lower, expect a quick, violent, and emotional move back to last November’s S/P 750 level.

One Response to “Diverging Indices = Higher?”

  1. Tim Racette February 6, 2009 at 10:25 pm #

    I hope everyone was able to capitalize on today’s move higher. The reason we didn’t play a straddle (buying a call and put: inittially neutral position) is because the stochastic was turing higher AND we had an increase in volume yesterday across the NYSE and NASDAQ. Keep watching the S/P previous high of $877.76 for future breakout trades.

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