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Negative Divergences Still Exist (Preview)

By Lawrence G. McMillan

Despite the euphoria about the market breaking out to new highs, accompanied by buy signals from many of our systems, and from our indicators, there is a dark cloud on the horizon. We have often mentioned that “stocks only” breadth has not kept pace – and it’s still not keeping pace. “Stocks only” cumulative breadth (i.e., the daily running sum of advances minus declines amongst all optionable stocks), made a new high in July 2014. It has basically gone nowhere since. $SPX was at 1974 at that time. Oh, yes, it eked out a slightly higher high in April 2015, but that was only by a few issues. Meanwhile, $SPX had risen to 2112 by that time. Now, $SPX is at even higher highs, and “stocks only” cumulative breadth is below those April 2015 highs. Since Brexit, “stocks only” breadth has been terrific, though, and it’s only a couple of thousand issues below its all-time high. Even so, $SPX has advanced nearly 200 points since July 2014, and cumulative breadth is essentially unchanged,. That’s a negative divergence.

By the way, NYSE breadth does not show this divergence, nor does the $SPX 1500 cumulative breadth. But I feel that our “stocks only” calculations take in a wider array of stocks, and I trust it more than those...

Figure 5

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