Divergences at Year-End: Are Markets Signaling a Turn?

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Heading towards the year’s end, most of the major indices continue to extend their record highs.

Last week, the S&P 500 added 1%, and the Nasdaq added 3.3%. However, all is not technically as well as it might appear on the surface!

Technically, diverging and non-confirming on Friday were the DJI (-0.6%) and the Dow Transportation (TRAN) (-0.57%) indexes. Old-school basic interpretation is that the TRAN should be confirming the industrials. In the new-school interpretation, that means the NDX & SPX, in my opinion.

Advance/decline and up/down volume have been much narrower and even technically negatively diverging internally on several days in the last couple of weeks. This action needs to be paid attention to, as it may be—and often does—signal a top approaching.

In addition, we are in a time zone, cycle-wise, that appears to be indicating a possible important turn could soon take place.

Now is the time, especially near year-end, to closely re-evaluate your portfolio or trading positions for what is relatively strong and what may be weaker and trailing the indices or groups they are in.

You may need to re-adjust your thinking, make changes, raise cash, and initiate more defensive positions/hedges, etc.

However, I never advocate anticipating any impending top, as it’s always best to let the market run its course and initiate a more distinct reversal before initiating short or hedge positions. Markets nearly always go further than you think they can. You don’t want to be short and run over by a freight train, so be patient and wait for the right timing.

Of course, I’ll be keeping you abreast of any key signals taking place that may indicate that is occurring.

Until then, we’ll be technically “Trading What We See, Not What We Think.”

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