Market Analysis

BS Alert

Just a quick follow-up to the many divergences I discussed this weekend in Deception. One chart in particular really sticks out here and that is equal weight, the $XVG.  What is the $XVG? It’s the value line geometric index that tracks the median move of stocks within the index using equally weighted values and is calculated geometrically rather than arithmetically. Why is that of interest? Because the value line geometric index can spot underlying weakness or strength versus cap-weighted index components. Heavily weighted stocks within a cap-weighted index can pull it higher even as the majority of the stocks within the index are not following along. For example, in a cap-weighted index like the S&P 500, it’s possible for the top 100 weighted stocks to carry the index higher while the remaining 400 stocks lose value.

And this is precisely what we’re seeing here. The larger market is not following along here. Hint: Check small caps and transports.

$XVG is saying this rally is all BS, hence it fits with the Deception theme I discussed.

See the massive negative divergence:

Again what a similar set-up we saw during the all time highs in September all the while $SPX has formed a massive bearish wedge.

Keep that in mind while $ES is currently rallying into the risk zone I outlined in the video this weekend:


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Categories: Market Analysis

12 replies »

  1. Not only is your analysis good and consistent (even if the market doesn’t always cooperate), but your discipline in scaling in and out in tranches is consistent as well. It’s hard enough to do either (good analysis, disciplined trading) on its own; but it is doubly hard to do both together well. Again, kudos, and thanks.
    Cheers,
    AM

  2. Club FED announced that the party is going into after hours. No more rate hikes for 2019. Will this just create a greater cliff of pain a bit later?

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