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Monday, April 27, 2015

There is a growing disconnect in the US stock market

The daily bar chart pattern of S&P 500 closed at a new lifetime high on Fri. Apr 24 ‘15 – just marginally higher than the level of Mar 2 ‘15. All three EMAs are rising and the index is trading above them in a long-term bull market.

The index may be forming a bullish ‘ascending triangle’ pattern, from which the likely break out is upwards. The ‘symmetrical triangle’ drawn on last week’s chart has been discarded.

But bulls need not take out the champagne bottle from the cooler – as all three daily indicators are showing negative divergences by failing to touch new highs with the index. A correction is waiting to happen.

S&P 500_Apr2415

A recent Bank of America Merrill Lynch survey has found a growing disconnect in the US stock market. US investors have pulled $79 Billion out of equities year to date — including net outflows in 9 of the past 10 weeks — despite stock prices continuing to break new record highs.

As this imbalance grows, the risk of something not seen in the market in years will continue to grow: a proper correction.

See an interesting chart about the disconnect here.

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