Divergences and seasonality are reasons to be cautious, but not to sell and certainly not to short$SPY $QQQ $SMH remain innocent until proven guilty in interemdiate term as they remain above the (0range) 5⃣DMA$IWM guilty until proven innocent below declining 5⃣
Only Price… pic.twitter.com/rQ2vK408ps— Brian Shannon, CMT (@alphatrends) February 7, 2024
🏆 Today’s Chart of the Day was shared by Brian Shannon (@alphatrends).
- Momentum and breadth indicators have recently begun to diverge from price, suggesting the rally is getting long in the tooth. In addition, the bulls no longer have a seasonal tailwind at their backs.
- While breadth, momentum, and seasonality warrant some caution, Brian reminds us that the trend is the final arbiter.
- The S&P 500 ($SPY), Nasdaq 100 ($QQQ), and Semiconductor Index ($SMH) are “innocent until proven guilty” as they’re above their 5-day moving averages. On the other hand, the Russell 2000 ($IWM) remains below its 5-day moving average, making it “guilty until proven innocent.”
The takeaway: Divergences are beginning to stack up as the rally matures. It’s important to be aware of these bearish developments, but acting on them is pointless until the short-term trend turns lower, which hasn’t happened yet.