Chart of the Day - Monday, August 31st 2020

Today’s Chart of the Day was shared on Twitter by Steve Strazza (@sstrazza). Throughout the recovery from the March lows, many have been quick to get bearish at the first sight of momentum divergences. A bearish momentum divergence is formed when price and RSI fail to make new highs together. Steve uses this chart of the Tech Sector ETF, $XLK, to emphasize the fact that these are simply potential momentum divergences until they're confirmed by price closing below the former highs. In February, a potential divergence formed and was later confirmed when price closed below the January highs. A few weeks ago, a similar divergence formed, except this time, price failed to confirm that divergence by continuing higher. Momentum divergences are an incredibly useful tool and they're always worth being aware of. However, it's important to be patient and wait for price to confirm a divergence before getting aggressively bearish.