Here’s the reply that I posted to your similar comments regarding divergences not working within the trading room:
No offense taken. You’ve said that several times before recently, usually whenever the market trades up over 1% but never when it is down 1% or more. My reply now is the same:
– Yes, not all divergences play out for a correction but the vast majority of the time they do.
– Divergences are NOT a sell signal, merely an indication that a impending trend reversal is likely, be it a rally with positive divergence during a downtrend or a correction following negative divergences in an uptrend.
– If I’m not mistaken, every signal divergence pointed out in advance on the daily time frame on the broad markets in recent years did play out for a tradable correction or rally.
– With that being said, I will have to agree with you that, at least only for the extremely tech-heavy Nasdaq, that divergences just seem to build without playing out for anything more than a minor pullback in recent months but once again, you seem to ignore the fact that the divergence shown on that QQQ 2-year daily chart posted earlier today, every single one of them except the current divergence (which is still intact), played out for a very significant correction. In fact, those 4 previous divergences over the last 2 years preceded drops of 26%, 17%, 8% & 6% in QQQ (although that first one was a flash crash that “only” resulted in a 19% drop in the underlying index, $NDX).
Finally, if the market goes to new highs, which it hasn’t (the market being every other index besides the Nasdaq Comp/100, all of them more diversified & inclusive of the various industries & sectors in the economy) & burns through those divergences, than you will be correct & hopefully profited a good deal from your adamant views that the market is going much higher before a substantial correction.
To me, I see one of the worst R/R profiles for being long the broad market at a time where the primary trend is bullish in a long time & until & unless the market (SPY, DIA, MDY, IWM, WLSH, etc..) makes new highs with the divergences & other red flags dissipating I’ll continue to trade both long & short but with a net short bias/exposure but focusing the majority of my trades on the best looking individual sectors & stocks.
The broad market (S&P 500) is comprised of 11 sectors. All but two (and only one as of last week with XLK barely eeking out a new high today) trading below their ATH’s, many of the well below. That is a not a sign of a healthy market. The other sector beside tech (XLK) as of today trading at new highs is consumer discretionary (XLY) which by no surprise, has an extreme 14.2% top-heavy weighting in AMZN. Still just a handful of stocks, the FAAMGs, doing most of the heavy lifting.
(end trading room comment reply)
To add to that, as you point out & I do recognize, it can be much more difficult to predict the future direction of “the stock market” as it is a compilation of thousands of stocks included in every industry & sector. Hence, one of the reasons that broad market analysis (with some exceptions) is free to the general public. However, using divergences to identify tops & bottoms in individual sectors or stocks, of course along with other technicals to help confirm the timing of the trend reversal, is much easier & where the best trading & investing opportunities lie IMO. Here are just a few recent examples posted on the site:
Financial Sector (XLK) so far down 9.5% from its divergent high on March 1st:


Steel Sector (SLX): Divergences highlighted but scenario drawn showed one last thrust (another subsequent, smaller divergent high following the larger divergent high, very similar to the current technicals on XLK) before SLX would go on to break down below the wedge/uptrend line, triggering an objective sell signal:


Divergence works just as well identifying bottoms as well as tops as CCE, which was added as a Long Swing Trade + Growth & Income Trade the very day after it bottomed from a 43% bear market illustrates. CCE wasn’t added as a long position simply because it had divergences as those divergences simply indicated that a major trend reversal was close at hand.


The timing for the entry on CCE was based on the other technical developments discussed at the time. At this time, regarding the broad markets, particularly QQQ, we need to see a break down below my critical support level (recently posted on the 30-minute charts) as well as the 5 FAAMG stocks all break below their respective key support levels posted the other day to trigger a high-probability sell signal. Even if the FAAMGs continue to lift the Q’s for days, weeks or months, there will always be plenty of trading opps on both the long & short side on various sectors & stocks.

Should have said 3.5%

via GIPHY

Exactly. I could just hear Elaine Benes saying: “Market breadth continued to deteriorate but the Q’s kept moving higher… YADH, YADH, YADH”. Maybe I should change to it Yet Another Divergent High Again (YADHA).