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Bullish breadth and momentum divergences in the short term

February 14, 2016

The Russell 2000 Small Cap Index has set up with bullish divergences on its 14 day RSI and one of its moving average breadth indicators (the % of stocks above their 50 day moving average).

This repeats a set up in late September 2015 (dashed line) from which the index managed an 11% rally into early December.

Russell 2000 Index, 14 day RSI, 50 day breadth
RUSSELL 2000 BREADTH AND RSI

  • The long term moving averages having rolled over, so I wouldn’t play them from the long side, we are in a bear market
  • I expect a rally to be smaller and over quicker but I would wait for a better entry opportunity on short positions
  • This means when this divergence has unwound and price is closer to the long term moving average (e.g. 40 week average)

Educational reference on divergences

My methods with daily and weekly RSI divergences
Examples of daily RSI divergences and how they turn out
Follow up on those 8 months later

 

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