Weakness Developing in the Equity Market

Since the March low, the stock market has been in a upward trend for about eight months. But some weaknesses developing now might sign a deep correction is near.

1. Divergences in market breadth and price, both NY A/D ratio and High/Low ratio.

2. Divergences between price and volume. While the prices are moving into new highs, the volumes are decreasing. When the prices come down, the volumes are increasing.

3. More and more stocks break down.

4. Major emerging market indexes and leading stocks show bearish volume patterns

Markets to Watch

Crude Oil has the potential to break out for a up leg. It might break low to shake followers out before it moves upward.



I like breakouts from the short downward trendlines of tight patterns. Long-term moving average crossover is a plus.

Divergences in the Equity Market

1. Divergence between NY A/D line and Dow Index.

2. Divergence between S&P price and volume

These divergences show some weakness in the broad markets now. The market might strengthen again and make them go away. Or these divergences stay for a quite long period of time until the market starts to break.