If you go back to 2001, large divergences between the Russell 2000 index and the NASDAQ 100 index preceded market drops or corrections.
I posted the 2001 to 2006 chart below for you to see the past relationship.
I won't go into a long explanation, because it is a very simply chart to understand by just looking at it.
We are now at the 8th. divergence condition. Note the steep rise on the red Russell 2000 index line, and compare that to the current, blue NASDAQ 100 index price line.
This means that the market risks are getting higher and the chances of a correction are increasing.
Of the previous 7 divergences, only one instance (label #7) had the NASDAQ 100 move higher before the correction. With 6 out of 7 going right into correction, investors should keep an eye on this divergence because it implies an elevation of risk levels in the market.
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