As the S&P 500 grinds its way to the old highs we're now seeing a true negative divergence on the NASDAQ daily chart. It doesn't have to play out, but it's there and needs to be respected as yet another headache that's hanging over this market, along with froth and terrible looking monthly-index charts. The market seems to be adding up problems yet it still hasn't broken. The power of the fed ever present in the minds of the traders out there. They seem to worry about nothing, no matter how bad the problem may be. The S&P 500 and Dow have the potential to flash negative divergences if they get up to their old highs.
But that's not clear, yet, as the MACD's aren't bad, they're just not blasting as they did before. However, if the price keeps going higher they may confirm price over time. Nothing is easy nor completely clear. If we didn't have the Fed backing this market we would be falling hard. The negative divergence in the Nasdaq 100 is really nasty, and with so many leading stocks back testing and failing, this really looks bad for the bulls. I don't know if the market can hold up much longer, but we shall see. It looks technically as if the market is ready for something bad for the bulls, but we need a big gap down that runs lower all day to start that engine running for the bears.
The biotechnology stocks have had a tremendous run higher. Froth at its very best. Many of them snapped down with gaps lower today, however, and did not recover, nor did they fill those gaps intraday, so they remain open. This doesn't mean the run in them is over as they are first to get love from those frothing bulls, but you have to respect the gap lower today that did not recover in basically all of them. They do not have negative divergences, so the frothing bulls can take solace in that, but they are now showing some MACD crosses from very elevated oscillator levels. So maybe back and forth is the best the bulls can hope for with the risk being a strong move lower.
The market has held up largely because of them, so it'll be interesting to see if the money continues its usual rotation, if they do indeed take a much larger hit in the very short term. Biotechnology stocks were joined by many other areas today, including transports. Kansas City Southern (NYSE:KSU) in the railroad sector gave a warning that killed the stock and killed every stock in the sector. More and more of this is taking place. Yes folks, that's the sound of low rates for forever more. Nothing good about a lot of things taking place here, but we still haven't seen the big snap down lower. The bears need to get busy soon.
If ever the bears had an opportunity it is now. This moment. Bios snapping. Negative divergences on the Nasdaq. Froth out of control, and horrible looking monthly charts. There's no guarantee the bears will get the job done, but the risk couldn't be much higher than it is now. You don't get bearish until you see the market break technically. The start would have to be a huge gap down that stays open, and closes at or near the lows.
If the market can move laterally for a while and work off the divergences without too much damage then the bears are toast. But, for now, we give the edge to the divergences, but, again, you do NOT get bearish until there's evidence that says it's time. The biggest message being take it slow here, although I'm sure most of you won't. As usual, do what feels best to you, but there is real risk here. Let's see if the bears can finally get it done, or if the action from the Fed is so powerful, literally, almost nothing can stop this runaway train that's carrying those frothed out bulls.