Divergence

• February 28, 2002
• Kevin Haggerty

Yesterday
started with an early up to an 1123 intraday high for
the SPX
(
$SPX.X |
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PowerRating), then a sell-off to an intraday low of 1102.26, which
held the previous day’s low of 1101.72. Just another Greenspan day, but once
again after all the commotion, the SPX finished just about unchanged at 1109.88.
The NDX
(
$NDX.X |
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(
$INDU |
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just +0.1%. NYSE volume was 1.4 billion, and the volume ratio which never really
went below 50 during the afternoon decline, finished at 60, which was a better
performance in the 3:00 p.m. mini-rally into the close. That’s a positive.

The basics continued
mostly green, with only a few minor exceptions. The
(
XLB |
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PowerRating)s are up 18% in 27
days, and for any more upside, the techs have to join the parade, or else the
Dow will head south. The SPX, being held back by the tech components, is bumping
up against its 89-day EMA of 1123.85 for the fourth time since breaking it to
the downside since January. The 30-week is just above it at 1136. This
resistance must be resolved immediately or else the index will fall off. 

In yesterday’s action,
most of the increased volume was evident in declining stocks, with the exception
being the rails, which displayed buying pressure. I exclude utilities from this
observation. Also, where the NYSE volume ratio is positive at 61, the NDX volume
ratio was in extreme negative divergence at just 21, with the Nasdaq only
slightly higher at 36. The question is does the NDX/Nasdaq turn up to get in
step with the Dow, or will the Dow fade after the 18% gain in the basics, i.e.,
XLB? My bias is shortside on the XLBs for position trades, and if any basics set
up long on an intraday basis, play them, but keep the bias short trade in the
XLBs on your sheet.

Stocks
Today

With the negative volume
ratio for the NDX, only two stocks finished in the top 25% of the range, and
only seven above the mid-point. So much for any buying pressure in the techs or
daily chart setups. 

Some stocks that do set
up on the daily charts are
(
RTN |
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(
ATK |
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(
UNP |
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(
VFC |
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(
PX |
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(
APD |
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(
MTG |
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(
ANN |
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(
EMMS |
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(
SCHL |
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(
ZRAN |
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(
INVN |
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PowerRating).

On the shortside,
(
SEPR |
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(
CHIR |
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(
GS |
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(
MWD |
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(
XLNX |
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PowerRating),
(
QLGC |
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PowerRating) and
(
CEPH |
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PowerRating). 

Have a good trading day.

Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs

Five-minute chart of
Wednesday’s NYSE TICKS