Thursday, August 07, 2008

Seeing the Whole Field: More on Divergences and Breakout Trades

We recently took a look at the significance of divergences among sectors; an earlier post chronicled a longer-term divergence in the new high/low data. Early today, we saw a similar sector divergence play out: as the ES futures made new highs for the regular trading day (top chart), we remained in a solid downtrend among banking issues (middle chart) and could not make new highs in the housing sector (bottom chart). The highs around 12:00 Noon CT also were not matched by the energy and consumer staples sectors. Sure enough, we retraced the day's range in ES and then broke through the lower end of the range, as financial and housing shares led the way down.

The good trader, like the good quarterback, has vision for the entire playing field.

1 comment:

e.e said...

Here's some statistical data. While Fridays are down days 79% of the time, in 27 weeks this year, 10 Thursdays have been down days.
These down Thursdays have been followed by down Fridays 9 times (90%) in total, and 100% of the time when Thursdays have gone down more than 0.75%.
Past performance is no indication of future performance but percentage tennis works.