NDX and Horsemen The NDX is near a retest of the top around 1635, but some major players still have a way to go to retest a one year high: <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=805939>
It's definitely a rally lead by the few, and by the smaller. SPX is leading the OEX, smaller caps are leading the way, and certain sectors including energy and housing are pulling the market (SPX is more heavily weighted in these so it is outperforming DJI). It's probably not a bad idea to look at the individual components of an index and not just TA on the index alone, my favorite stock commentator does just that, breaking down which stocks are going through support and resistence to get a better feel of the overall picture.
I like your thinking but it's not complete. Divergences exist everywhere and anybody good can see them. But is this THE time to bail and reverse? Me thinks not yet but soon. What is still keeping me in this blow-off move (still long QQQQ calls) is the SOX breaking out of the tight and I mean really really "tight" flag with a huge pole. It broke out big today but INTC has still not recovered from the earnings dump and that's cause for concern. If price even thinks about getting back into the SOX flag range I am out my calls and into some low priced puts.
Divergence does not matter. You can keep having more divergence every swing higher. The important thing is the underlying tone of the market. Are people selling into the rallies? Is everybody selling into the rallies? If so, the market will keep going higher, thats called a bear rally. There is an example showing just how that works - Japan's stock market after its first major crash. Everybody "knows" it should not go higher, but it just keep going higher Sometimes, you just cannot explain what is happening, like the dot bomb era, until after it's already finished. It is easier to take it one day at a time