Market Analysis

Market Paradox

What Correction I asked yesterday as many key stocks and indices don’t show any correction on longer term time frames so quickly came the bounce erasing virtually all losses.

But the quick recovery brings about concerns that can be described as a market paradox.

Firstly note that the $NDX, led by the usual suspects, is actually near all time highs. Tech continues to be strong and if you’re coming from a bullish perspective you could make the case that there is potential for a massive bullish pattern here, a cup and handle:

Knowing that many of key tech stocks haven’t even corrected in a real way it seems incredulous to expect another massive rally on tech, but the big cap tech companies dominate everything. Not only this, but we are on year 10 of uninterrupted advance and the index is insanely disconnected from the yearly 5 EMA.

What correction?

Also to consider: $NDX kept defending its upper trend line which is now support:

As long as that upper trend line holds $NDX is bullish full stop.

Here’s a longer term term view:

Yet we also see this incredible narrow leadership in these markets leading to a very pronounced bifurcation:

$AMZN of course dominates everything, but while tech is super strong take a look at the $DJIA:

It’s weak and lagging big time, but also has room to tackle the 50MA again if we get strength, but it remains notable below the 50MA at the time of this writing. This is the issue of internals I highlighted in Broken.

What’s this all mean? It remains a bifurcated market, but more importantly it highlights a paradox: If $NDX were to make new highs it would so without the rest of the market.

And in this context making new highs on $NDX could prove disastrous for this market.

Here’s the key: If $NDX makes new highs here in March these highs would come on a massive negative weekly divergence:

Curiously enough this has happened before. A negative weekly divergence on the $NDX in March at a time when tech stocks wouldn’t stay down.


The year was 2000.

And funny enough back in 2000 a paradox occurred while the $NDX marched on to new highs: The$DJIA did not make new highs, in fact it made a lower high:

…which is precisely what would happen this time if $NDX were to make new highs.

$NDX has yet to make new highs, but if it does, it will likely do so on its own, on year 10 of its advance and over 25% above its yearly 5 EMA with the $DJIA lagging far behind. So tech bulls, be careful what you wish for, you may just get it, but it may end up being a paradox ill suited for further gains.

For the latest public analysis please visit NorthmanTrader. For our market products please visit Services.

All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.

Categories: Market Analysis

Tagged as: , ,

28 replies »


This site uses Akismet to reduce spam. Learn how your comment data is processed.