The following (green highlights) is an excerpt from our July 12th Asbury Alert, entitled Relative Weakness In Semiconductors Is Near Term Bearish For US Broad Market.
Asbury Alerts are one of 8 different reports that we produce for Asbury Research clients throughout the month.
Chart 2 points out three great longer term examples of how these periodic divergences between the SOX and the S&P 500 have historically led important changes in US broad market direction. The red highlights show how negative divergences between SOX and SPX between February 2006 and July 2007 and between February 2011 and March 2012 led important US broad market declines, and also how the positive divergence between November 2008 and March 2009 led the 2009 to 2011 broad market advance.
Chart 3 points out the most recent instance of a divergence between these indexes, in this case a negative or bearish one, as the S&P 500 (black bars, upper panel) tested, held and rallied from major underlying support at its 200-day moving average (orange line) in early June while the SOX Index (blue bars, lower panel) coincidentally broke down below its 200-day moving average and has remained there since.
This negative divergence warns that more near term weakness is coming in the S&P 500 and in the US stock market in general.
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