Divergences abound

The coverage has been breathless, the traders on the floor giddy, the hype machine revving towards the redline. But while the Dow has been kissing all time highs, other measures of market strength are simply not keeping up

Doc Steenbarger put together a sharp list of divergences. Consider the following:

•  20 day highs: This past week, we’ve seen a maximum number of 1239 stocks register fresh 20-day highs. The week before we had 1498. The

  week before that, we hit 1622. (Kudos to the Barchart site for these numbers);

• The Russell 2000 Index (IWM) is off its highs from last week and well off its May highs, even as the S&P 500 Index is making fresh bull market highs. Midcap stocks (MDY) are similarly off their May highs, as is the NASDAQ 100 (QQQQ);

• The Energy sector (XLE) is well off its bull market highs. Also failing to make new 20 day highs recently were the Financial (XLF), Consumer Staples (XLP), Healthcare (XLV), and Semiconductor (SMH) sectors;

• Dow Transports (TRAN) and Utilities (UTIL) are both well off their highs;

How broad is the large cap rally? Consider:

On Thursday (9/28), only 37 of the S&P 500 stocks made annual new highs. That figure was 46 the day before that and 48 on Tuesday. Just two weeks ago, we had well over 60 new highs among S&P 500 stocks. In March, we had well over 90 new highs.


Four Dow Jones Industrial Average stocks out of the 30 made new 52-week highs on Thursday. That was down from six the previous two sessions and down from eight two weeks ago;

• NASDAQ large caps? Only four of the 100 in the NASDAQ 100 Index made new highs on Thursday, down from six the previous day and nine two weeks ago. In March we had over 15 new highs. (Hats off to the Decision Point site for tracking these numbers).

Really good stuff — thanks, Doc.
(and thanks for the coffee — Good beans!)


Divergences abound in the current market
Brett Steenbarger
TradingMarkets.com, September 29, 2006   9:00 AM

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What's been said:

Discussions found on the web:
  1. Idaho_Spud commented on Oct 1

    Can the Dow 30 be manipulated through the Nov elections with Q3 earnings reporting just around the corner? We will soon see if the men behind the curtain can pull it off…

  2. Dan G commented on Oct 1

    To me, this looks like a run for “higher quality” large caps to weather the storm. Smaller cos are dropping while the bigcos hit new highs…

  3. Michael C. commented on Oct 1

    This is all great data. But it provides absolutely no analysis.

    It’s important to do the forward or historical analysis because sometimes data is not as positive or negative as one would think.

    That’s why Jason does such an absolutely great job at Sentimentrader. He not only shows you the data, but also shows you the historical results going forward from that data. Sometimes the results are surprising.

    Yes, this is a negative divergence. I agree. But what are the average results from such a divergence? That’s where the real work is.

  4. bastiat commented on Oct 2

    That’s a mighty impressive post hoc, propter hoc set-up there, Idaho.

    If the DJ is up, it’s, “I told you so.” If it doesn’t, well, they just couldn’t pull it off.

    Do you do kid’s parties?

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