Bulls are back to dining at the “V”, the magic quick dip correction that never happened. The price action appears massively bullish, yet the data underneath is not at all. Instead it appears more associated with bull market end times. The final thrashing about which we’ve seen several times before. After all the tops of 2000 and 2007 were marked by a sudden acceleration in volatility and sudden corrective moves exceeding 10% followed by rallies of the similar magnitude. The underlying theme of these subsequent rallies: Narrowing of leadership, negative divergences and a renewed bullishness breathing a sigh of relief at precisely the wrong time.
This is exactly what we are witnessing now and let me highlight the Nasdaq in particular as there are cracks appearing amidst this aggressive rally back to highs.
Here’s the “V”:
It used to be that 10% corrections would take months to repair, no more, we can now do this in 2 weeks. The consequence of course we see this massive candle on the monthly and we see similar candles on many of the index charts.
Yesterday I asked this question:
— Sven Henrich (@NorthmanTrader) February 26, 2018
It may mean nothing and lacks confirmation, but it’s a highly unusual monthly candle.
Let’s look underneath the hood. $NDX is nearly making new highs and new high/new lows are a mere shadow of what they were just a few weeks ago at the same price levels:
$NDX stock above the 50MA? Recovered but with fewer participants:
Yesterday’s advance/decline on Nasdaq? Weaker than on Friday:
There are $NDX stocks that are making new all time highs. And guess what? All on massive negative divergences:
And the ones not having made new highs yet would make new highs also on negative divergences:
This rally’s advance came again on a complete collapse in equal weight:
$XVG continues to show a similar pattern of deterioration seen in 2007:
The recovery on $NDX was so fast one can’t even see a correction ever having taken place on the yearly chart:
Many of these high fliers continue to be vastly extended. Where have they corrected? You tell me:
We saw a quick 12-13% down on indices and now a similar move higher. All in 3 weeks producing negative divergences.
This was precisely the action that marked the final throes for the Nasdaq in 2000:
None of this means of we can’t go higher still. Indeed we could make new highs altogether, however given the context of the patterns, the underlying data and historical comparisons strongly suggest that these appearing cracks are very much worth paying attention to.
So far this is a narrow rally that is dependent on a handful stocks some of which are making new highs on negative divergences while being historically extended.
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Categories: Market Analysis