Today's Technical Analysis: Market Divergence

Technical analysis is simply a way to glean into the supply/demand characteristics of a market or security. Usually, the technicals and the market go in unison – technicals rise and so does market, technicals fall and so does market. However, there are times when technicals and price “diverge”. On the monthly S&P 500 Index (SPY) the price has risen since the begging of 2018, while technicals are falling. This is telling us that there is less demand, and thus, prices should fall. This is called negative divergence. On the other hand, there are times when markets show positive divergence. This is the case today as small company emerging market prices have been flat as the Chaikan Money Flow Index is positive. It is always best to invest in positive diverging markets and avoid negative diverging markets.