A CONFIRMED SELLING divergence is set and activated. Two weeks ago, the Internet Set and the Classic portfolios closed above, or matched, their highest previous prices (point 4 on the chart). Divergences reliably signal price-trend reversals, especially if they are continuous and repetitive.
Divergence set up occurs when a price reaches an extreme that is not matched by its Money Flow line. Each repetition emphasizes the increased likelihood of a more extended reversal move in prices. The Internet Set has been the leader in the strong bull market that started in March 2009 which now appears to have ended. The divergence is activated by the first price change in the opposite direction after the set up. That was one week ago.
Note that Internet Set has completed three consecutive divergences since the peak at Point 1. The intervening lowest point after 1 lasted three weeks until the move up to the next divergence at Point 2. From there, there was a five-week drop before the next move up to the new peak at Point 3. From Point 3 to the next low before that next newest high was seven weeks. Each longer decline was accompanied by a commensurately larger drop in prices. If a similar progression of symmetry prevails now, the next low will be in October, 15% lower than today [DJIA 10809.85, S&P500 1199.38]. (A sensitive eye can also perceive a 'broadening-top' formation--devastating to market prices.)
Not to mention that all systems across this website are now lined up emphatically negative--with vigor.
~Copernicus
August 5, 2011
