PLEASE READ THE DISCLAIMER AT THE BOTTOM OF THIS PAGE WHICH APPLIES TO ALL CONTENT IN THIS BLOG AS WELL AS ANY OTHER MATERIAL FROM WE ARE FUTURES TRADERS LLC. READING ANY CONTENT BELOW CONSTITUTES AN AGREEMENT BY ALL READERS THAT THEY HAVE READ AND AGREE TO ALL THAT IS SET FORTH IN THE DISCLAIMER AT THE BOTTOM OF THIS PAGE.
Friday, October 13, 2006
Displayed today is the S&P 500 and the bonds. Notice how all the way up during this big rally, the bonds have supported the S&P in both directions as indicated by the lines on the chart, until recently.
Now that the bonds have broken their uptrend, they are diverging from the S&P. It is early in the game for this to be a big problem, but it bears watching. Sometimes these divergences can carry on for months before anything happens like in May when it finally mattered.
However, in July the bonds started bullishly diverging from the S&P and almost immediately the stock market rallied. So, this is something that at the very least should tell folks to cut back their long exposure to stocks and be prepared to get out if we get a break down in S&P 500 prices.
At this point it is just a caution warning, but this rally is so extended that even the election bias is not going to save it from at the very least a pullback. Figure out your own ways of using this tool, it is worth the research time.