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.