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StockTiming.com. Stock Investing using Trends & Analysis
Thursday, March 11th. - Stock Trends, Charts, and Commentary
What are the Leadership Stocks saying about the market now?
On our Leadership Ratio chart, we measure the strength of the Leadership stocks every day and compare them to the strength of the Broad Market stocks. We then divide the two numbers and create a Ratio that shows if the Leaders are moving forward or retreating relative to the Broad Market stocks.
Leadership stocks are like battalion leaders, in that the Broad market stocks (the troops), follow the direction and the command of the Leader.
Generally, if the Leadership Stock Ratio is positive and moving up, then the Broad Market stocks will follow the leaders. If the Leadership Stock Ratio is negative and falling, then the Broad Market stocks will be close behind and follow the retreat.
Today, we have something a little different going on. Currently, the Leadership Stocks have a positive ratio and are moving higher. Additionally, the Leadership Ratio has exceeded January's high ... so a new high has been made.
Normally, you would want to see such action occur on increasing strength in the market. After all, if the Leadership stocks are weak and can't maintain their advance, then the Broad Market stocks won't have a sustainable advance.
So what is going on now?
Well, while the Leadership Ratio is making a higher/high, it is doing so with the market's strength at a lower/high. That means that there is a negative divergence coming from the RSI (strength).
Here is the problem that could develop: Look at labels 1, 2, and 3 on today's chart. They are currently showing a high, followed by a lower/low at label 2, and now a lower/high at label 3. If the Relative Strength at label 3 does not move up to make a higher/high, then we could see a lower/low occur next, below label 2 and that would fit the definition of a "down trend".
The current condition can currently be best described as follows: On the short term, Leadership stocks are advancing and will pull the Broad market stocks up. As this occurs, the market's strength must increase, or the market's rise will not be able to hold itself up. This can change, but for right now, the market is telling us that it is trying to do something while it is weaker than before.
Use information like this the way the same way you drive a car. As you drive down a highway, you look way ahead to make sure that conditions are clear and safe. If they are, you maintain your speed and you don't get into trouble for doing it. However, if there seems to be congestion ahead, or if you see brake lights flickering in the distance, you start to reduce your speed as a precaution. The negative divergence in strength is saying that brake lights may be flickering ahead, so be alert.
I hope you enjoyed today's update. As many of you know, this is a proprietary chart that we post
every day on our paid subscriber sites. In fairness to our subscribers, we will not post it again until close to the end of April on this free site.
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