Safehaven | Be Aware of Negative Divergences ...

September 22, 2009

Be Aware of Negative Divergences ...
by Marty Chenard

Last week, I spoke about Divergences and their importance.

Some technicians use a 30 day Momentum indicator in order to spot divergences. Although it is not one of my favorites, it does offer a divergence warning for investors.

For example, look at today's NYA Index plotted against a 30 Day Momentum indicator.

In May and June, it was clear that the NYA had a Negative Divergence with its 30 day momentum. The divergence continued on until the momentum indicator fell below its support line ... and that was the indication that the NYA Index would have a pull back.

So, now we are seeing another such divergence building for August and September. The divergence is increasing, but the Momentum Indicator is still holding above its support. Keep an eye on this indicator, for when it breaks support, the NYA will pull back.

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Marty Chenard
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