Skip to main content

Divergence - am I coming or going?

When I write about stock market sectors or individual stocks, I generally give an overview of the fundamentals. On the other hand, all the BUY SELL signals we offer at Alert HQ are strictly based on technical analysis.

Whereas the Alert HQ methodology primarily looks for technical indicators that are in agreement in order to generate its signals, there is an important school of thought that says that it is important to note when indicators are not in agreement. This is known as divergence.

More precisely, divergence is when the price of an asset (a stock or ETF, for example) and an indicator, index or other related asset move in opposite directions. An investor looks for those instances where the trends begin to head in opposite directions. This is interpreted as a signal that a turn in the asset price is imminent.

The difference between stock or index prices and MACD is one of the more common divergences that investors watch. Others involves prices and either stochastics, Money Flow Index, RSI, accumulation/distribution or advance/decline.

Sometimes an indicator itself is based on the divergence concept. Moving Average Convergence/Divergence (MACD ) is an example.

Let's see how it works --

The best way to illustrate how divergences work is to look at a chart and walk through some analysis.

Luckily, our friends at Market Club are presenting a new video on the S&P and Divergences.

In this short video, they share with you some divergences that are taking place in the S&P 500 right now. In the course of the analysis they will also show you divergences that didn't work out, what you should look for, and how you should act when a divergence does not work.

So check out the video, it's free and there are no obligations. If divergences weren't on your radar before, it will help you become more aware of when divergences are developing. This can be one more important tool you can use to prepare for turns in the market or in individual stocks.
Labels:

Comments

Post a Comment

Popular posts from this blog

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.
Post a Comment
Read more

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what...
6 comments
Read more

Business Intelligence consolidation - who's next?

We have seen a consolidation wave begin in the Business Intelligence space. IBM just bought Cognos and Oracle recently bought Hyperion. SAP just announced they are buying Business Objects after barely having time to digest their recent acquisition of Pilot Software. There are three major database vendors at this time: IBM with their DB2 product, Oracle with their flagship Oracle database and Microsoft with their SQL Server database. IBM and Oracle now have premier, industrial-strength data analysis and reporting products in their product portfolios that complement their core database products. Microsoft has what, Excel? Actually, Microsoft, like IBM and Oracle, has a suite of proprietary tools that do happen to integrate very well with Excel and SQL Server. Still, IT departments are not deploying the Microsoft tools for heavy-duty corporate use. Microsoft is unique among the big three by their lack of a premier reporting product. It seems safe to assume that Microsoft will be the next...
1 comment
Read more