I was looking at the Nasdaq Cumulative High/Low chart and compared its recent action to the Composite and saw a bad divergence. While the Comp rallied a second time in the middle of this month to reach the heights reached at the beginning of this month...the HL readings did not. Rather they fell shorter as you can see below. My take on this? Time to sell rallies. Remember in a bear market, your shorts are investments and your longs are trades!
Sweet Babak! Thx for the heads up. This is a divergence I have not looked for previously Babak. Is it one you routinely use? I guess I'm really asking if this has historical significance or is it just an acute finding. Thanks again.
The H/L index is one of the indicators I follow. I don't think it is wise to rely on any one indicator and never for a 'signal'. I prefer to throw a lot of stuff into a pot and stir it up to see what brews. The amalgam is always more truthful than any one perspective of the market...and unfortunately messier to interpret. What I get from a bunch of 'indicators' is a tendency not a signal. Ofcourse, I do not mean to say that the rally (we had today) can't continue. It certainly can. The market does what it willith. Rather what I am pointing out is that any such a rally would have weaker and weaker legs with which to stand on. If anyone is interested in picking up a few new technical tools I would recommend Helen Meisler and John Roque at realmoney.com Roque doesn't contribute often. But when he does its manna from the trading Gods. And I do get compensated for advertising Cramer's website. But I don't get monetary compensation, instead I get to put Kudlow in a headlock until he screams like the girl that he is. And regarding that remark...I can't take credit for it. I have heard it from much better traders than I and it stuck with me because it makes so much sense.
LOL Babak...thx for the charts...very helpful for the short position i've been putting on lately....slowly....ahh....short....
A very interesting "indicator, and certainly something to think about. But (there's always a but), how do you deal with such irrefutable evidence in the face of a large move upward? I presume that you sat out the rally, since it shouldn't be happening. My point being, wouldn't it almost be better to not know what you know?
tampa, as I wrote in my previous post, if the Comp H/L index is not mirroring (or bettering) the Comp itself, then that is telling us is that all the 'soldiers' are not participating in the charge upwards. The result is that those few stocks that are leading the charge become stretched and 'tired'...leading to the demise of the rally. Ofcourse how stretched they will get is anyone's guess and we can't really tell just by looking at this one indicator. I didn't say that it is a signal to sell. Rather it is something interesting. That's all.