Sunday, September 9, 2012

Negative divergences suggest a cautious approach

It was the bulls all the way the last two trading days of the week and I hope you readers had a nice profit making week. It is helpful to make good on days like Thursday and Friday, so that one can afford to play defense in choppy or sideways markets. With many indices at multi-year highs, the momentum lies strongly with the bulls as we head into next week. Let's have a look at the weekly S&P and NASDAQ charts.

Both the indices show are exhibiting negative divergences, with the new highs on the index not being accompanied by new highs on the MACD indicator. I am not saying one should short here, as momentum does lie clearly with the bulls, but it might not be a bad idea to take some profits from last week off the table and let the rest ride with stops in place. If you have missed the party so far, it wouldn't be a bad idea to wait for a period of consolidation or slight pullback rather than jump in first thing on Monday.

Take care and good luck!

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