Today saw fresh all-time highs hit on most of the broad market indexes. The weekly Price Momentum Oscillators (PMOs) just generated new Intermediate-Term BUY signals on all four DecisionPoint Scoreboard indexes (SPX, NDX, Dow and OEX). These signals are triggered when the weekly PMO crosses above its signal line on close of business of the last trading day of the week. Yet, despite all of the bullish price activity, the Swenlin Trading Oscillators are in decline - a steep decline, at that.
Typically, when we see these types of negative divergences on these indicators, it happens before a short- (or even intermediate-) term price decline. The negative divergence right now is quite severe; it is very concerning to see the steep declining trends on the STOs paired with steep price rises on new all-time highs.
These conditions are not unique to the SPX. Notice that we are seeing the same phenomena on the other major indexes, including the NYSE, S&P 400 and S&P 600.
Conclusion: I want to believe this rally will continue; certainly the new weekly PMO BUY signals suggest it should. However, when I look at these negative divergences, I have to remain cautious. I'm not adding any new positions just yet and, as you can read in the DecisionPoint Daily Diamonds Reports, I am still 60% cash in my portfolio.
Watch the latest episode of DecisionPoint with Carl & Erin Swenlin LIVE on Fridays 4:30p EST or on the StockCharts TV YouTube channel here!
Technical Analysis is a windsock, not a crystal ball.
Happy Charting! - Erin
erinh@stockcharts.com
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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