Short-Term Positive Divergences
As noted yesterday, we don’t like the look of the market and will most likely take an incremental step away from risk today. The chart below may impact the size of our incremental step. Price, in the middle of the chart, has made a lower low (see A2 vs. B2). RSI has a flat look to it (A1 vs. B1). The MACD histogram has a short-term, bullish divergence (A3 vs. B3), which gives some hope for stabilization in price near B2. You can see the divergences by comparing the slopes of the orange, pink, and green lines.
It should be noted the divergences above do not appear on the S&P 500’s weekly chart, which would be much more meaningful. Short-term divergences like the one shown above can be wiped out via further weakness, but it is good to know it exists relative to position sizing.
