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Technical Analysis Divergence In A Frustrating Stock Market
Monday, April 17, 2006

Nightly Update - Divergence-In-A-Frustrating-Stock- Market

Divergence In A Frustrating Stock Market & the S&P 500 & Dow Jones Industrial Average
After today's action in the SPX and the INDU,one wonders who is in charge of the lever. The Big Money dropped the SPX and INDU through their up trendlines and then brought them right back up on light volume. Today look's like a head fake day on the INDU and SPX. It is difficult to say that this is bearish when the charts technically look strong. Out of the DOW 30, the following cyclical stocks are strong: DuPont, Alcoa, Caterpillar, and Honeywell. They should not be this strong on rising energy prices. Furthermore, Johnson & Johnson and Pfizer and drug safety stocks are weak, and they are considered defensive stocks. Looking back over the past few months, I am starting to see this divergence within stocks and sectors and within sectors themselves. This is the most frustrating and difficult market.

There is so much divergence in this market. For example, do RGLD and NEM know they are gold stocks? What about the homebuilders? Does MTH not know that other homebuilders look awful. Does GPRO know that the Bio - pharma's tanked. Does ADBE know that investors are avoiding the software index? My point is that this is a stock picker's market. Furthermore, they don't follow their respective indexes or the broader market. Some of the portfolio stocks are not performing well. Today look's like a head fake day on the INDU and SPX.

The Nasdaq Composite (COMPQ)- Daily Chart
The daily chart of the COMPQ illustrates that it has broken out of an ascending triangle pattern. However, the COMPQ is now pulling back on low volume to back test support at 2300. The COMPQ bounced off the uptrend line, so no head fakes here. Leadership stocks are still lagging which indicates the COMPQ is not out of the woods. The broader market is at a technical inflection point. This means that a big sustainable move is coming in the future. I believe that we are transitioning to a fast moving market. However, I do not know if this move is going to be sustainable up or down. I do know that the COMPQ is going to 2400, but it could go lower first. If all up trend lines are broken then that is another story. At this inflection point, the best course of action is too manage your positions and get into stocks that work regardless of their respective indexes and the broader market. As stated earlier, the divergence within stock performance in general is huge. Look at the divergence between the performance of NVDA versus INTC. Also look at the divergence in performance between the NDX and NEM whilst gold is making 52 week highs. Bottom line, this is a stock picker's market. This is a market where not much makes sense and it is demoralizing to traders. Well, don't forget to keep the big picture in mind. The big picture is that we are still above the uptrend line.

Russell 2000 iShares (IWM) - Daily Chart

The daily chart illustrates that the IWM has traded in a nice uptrend channel since it placed it's lows in October at $60.91. Today the IWM bounced off the uptrend line. As you can see from the chart, indicators and oscillators are bullish.

SP500 Stock Chart
DOW Stock Chart
NASDAQ Stock Chart
NASDAQ Stock Chart
IWM Stock Chart
Stock Chart