Could This S&P 500 Divergence Lead To Historic Market Correction?

via Chris Kimble

After navigating an early year stock market correction, investors have seen the S&P 500(NYSEARCA: SPY) climb back to new all-time highs.

While making new highs is bullish, it’s concerning when it comes with a significant divergence.

In this case, it’s a momentum divergence.

And history has shown that while some divergences are ignored for weeks or months, there have been a couple in the past 20 years that have lead to significant declines.

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Both of these momentum divergences came when the S&P 500 made a “second high”.  See chart below.

Looking at the chart below, you can see that while the S&P 500 is trying to breakout in September (and making a second high), it’s seeing a lower momentum reading.

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Two notable times we saw divergence patterns and readings like this were September 2000 and October 2007. Yikes!

History doesn’t always repeat itself, but it does offer investors a thoughtful reminder of why it’s important to pay attention to risk indicators… and to always have a plan!

S&P 500 “Second” Peaks with Momentum Divergences

s&p 500 index stock market tops divergence momentum history_october 2018


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