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Trading Lessons

Do All Bull Stocks Markets Need to Have a Bearish Divergence?

Stock-Markets / Stock Markets 2018 Mar 11, 2018 - 04:22 AM GMT

By: Troy_Bombardia

Stock-Markets

The Medium-Long Term Model states that this bull market has 1-2 years left. As a result, we are tryin to catch the bull market’s top as accurately as possible.

The January 2018 top did not have a weekly bearish divergence. Momentum (RSI 14) peaked at the same time as the S&P 500.


I frequently state that bull markets end AFTER momentum has weakened. This isn’t 100% true.

  1. Bull markets cannot end when momentum is EXTREMELY strong as it was in January 2018. When momentum is extremely strong, there must be a bearish divergence before the bull market can end. (See study from January)
  2. Bull markets don’t have to end with a bearish divergence (weekly bar chart). 3 historical bull market tops had bearish divergences. 1 bull market top did not have a bearish divergence.

Let’s look at the historical bull market tops in detail.

October 2007 bull market top

The S&P 500 made a bearish divergence (weekly bar chart, RSI 14) before topping in October 2007.

March 2000 top

The S&P 500 made a long and steady bearish divergence (weekly bar chart, RSI 14) before topping in March 2000.

January 1973

The S&P 500 made a bearish divergence (weekly bar chart, RSI 14) before topping in January 1973.

December 1968

The S&P 500 DID NOT makee a bearish divergence topping in December 1968.

Conclusion

I don’t expect the bull market’s top to be in. Most bull market tops end with a bearish divergence. We will probably see a bearish divergence when this bull market peaks because the S&P 500’s RSI was extremely high in 2018. The S&P 500 will go higher throughout 2018 in a choppy manner. A choppy uptrend = a not extremely high RSI, which means that there will be a bearish divergence.

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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