Waiting for divergences to play out

04 March

Here is how some ideas from recent weeks are developing.

I showed the Morgan Stanley Consumer Index (CMR) v Morgan Stanley Commodity Related Equity Index (CRX) breaking higher from a Bollinger Band contraction. That break continues.

The coal sector underperforms the S&P500 Index and the SPDR Energy (XLE). That downtrend continues but I am looking for bullish divergences on weekly RSI and MACD soon, for a relative buy point for coal stocks.

Dow Jones Coal Index v SPDR Energy (XLE)

Gold stock breadth (on the 16 components of the Philadelphia Gold & Silver Index), as measured by the %age of stocks below their 200 day moving average is oversold.

I showed that historically, breadth is first oversold at least five weeks before the price low. Breadth reached zero on 20 February, so let’s look around the end of March.

Two weeks ago, I showed Newmont Mining (NEM) possibly forming a bullish divergence against the S&P500 Index. That divergence has been blown away and we’ll have to wait for another relative RSI divergence buy set up. No other gold stocks shows such a set up either.

Last week I shows some sector RSI divergences. The divergence on the Biotech sector is still in place even though price has moved higher.

Remember that the best RSI divergence trades meet criteria on the weekly and daily chart as described here.

The SPDR Health (XLV) still has weekly RSI and breadth divergences. Not much has changed on that chart.

XLV and %age of component stocks above their 100 day average

So in summary, still a waiting game on these set ups.