Divergence - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

Divergence

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The S&P 500 is, once again, rising towards the 200 day moving average in anticipation of a resolution to the Greek/Italy/Euro crisis. However, there is a divergence forming between the rise in equities and the MACD. The MACD is a trend-following momentum indicator that shows the relationship between two moving averages of prices. When a divergence forms – meaning the indicator moves the opposite direction of the market – it is a signal to traders that the current trend in the market is about to end.

Traders are still worried about what the outcome of the Greek/Italy/Euro crisis will be and the divergence between the MACD and the S&P 500 is a good indication that they do not want to take any additional risks in their portfolios.

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