• T2107 bearish divergence

Typically a divergence on an indicator, especially as drastic as that on the T2107 foretells of a looming reversal in the market. 

The T2107 measures the number of stocks trading above the 200-day moving average. What’s funny is that the SPX is so far above the 200-day moving average and hasn’t traded below it since November of 2012 – about nine months ago. 

However, at this moment only 54% of those stocks are trading above the 200-day moving average.

T2107 bearish divergence

The conclusion to draw here is that there is a lot more weakness in individual stocks than what the broader market is showcasing for everyone to see. 

What is even more concerning is that back in May when the SPX hit all time highs, 70% of stocks were trading above the 200-day moving average. Not a great reading but okay nonetheless. but in July when the SPX crossed into 1700 for the first time less than 60% were doing the same thing. 

spx Chart weekly

So what should be concluded here is that we should be on guard for the potential of a strong move downward. May not happen this week or next, but eventually the divergence that we are seeing will be put to the text and you’ll need to make sure you are ready to respond appropriately. 

 

 

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