3 replies to this topic

[slupert]

https://schrts.co/HZxHyFeg

[Douglas]

slupert, I've tried to use divergences for a very long time with mixed results.  The plot below shows the Bullish Percent, New Highs minus New Lows, and Percent Above 50 SMA for the SPX using weekly data.  Failed divergence whipsaws are common.  I've marked three that fooled me.  In this funny money liquidity driven stock market using these popular divergences (or any one of a host of others for that matter) for trade signals requires a strong stomach and tight stops.  If the funny money liquidity flood is big enough, it seems to just overwhelm even the nastiest divergences

 

 

The new element in this equation appears to my jaundiced eye to be war news.  The funny money is still there providing a strong liquidity up bias, but this unruly war is providing an undercurrent of uncertainly in the last few weeks that is tamping down enthusiasm.  Currently I suspect the bulls are just waiting for some sort of resolution to the war to get all giddy and buy. 

 

My question is, what if there isn't a resolution in the foreseeable future even with a TACO with Iran doing a Vietnam or an Afghanistan toughing it out for the long term constantly interfering with ship traffic in the Strait of Hormuz?  My second question is, how long or will this ever seriously matter to the stock market given the biblical flood of funny money flowing out of the Fed and Treasury?   I'm thinking it just might seriously matter by this fall sometime, maybe in October or early November at the latest given my bearish bias.  Going back to your post, I can imagine that the first cracks in the bullish facade possibly might start to show up as early as sometime in next few weeks making the divergence you point out start to matter.    

 

Regards,

Douglas

Edited by Douglas, 29 April 2026 - 12:57 AM.

[slupert]

slupert, I've tried to use divergences for a very long time with mixed results.  The plot below shows the Bullish Percent, New Highs minus New Lows, and Percent Above 50 SMA for the SPX using weekly data.  Failed divergence whipsaws are common.  I've marked three that fooled me.  In this funny money liquidity driven stock market using these popular divergences (or any one of a host of others for that matter) for trade signals requires a strong stomach and tight stops.  If the funny money liquidity flood is big enough, it seems to just overwhelm even the nastiest divergences

 

 

The new element in this equation appears to my jaundiced eye to be war news.  The funny money is still there providing a strong liquidity up bias, but this unruly war is providing an undercurrent of uncertainly in the last few weeks that is tamping down enthusiasm.  Currently I suspect the bulls are just waiting for some sort of resolution to the war to get all giddy and buy. 

 

My question is, what if there isn't a resolution in the foreseeable future even with a TACO with Iran doing a Vietnam or an Afghanistan toughing it out for the long term constantly interfering with ship traffic in the Strait of Hormuz?  My second question is, how long or will this ever seriously matter to the stock market given the biblical flood of funny money flowing out of the Fed and Treasury?   I'm thinking it just might seriously matter by this fall sometime, maybe in October or early November at the latest given my bearish bias.  Going back to your post, I can imagine that the first cracks in the bullish facade possibly might start to show up as early as sometime in next few weeks making the divergence you point out start to matter.    

 

Regards,

Douglas

Thank for such a well thought out response Douglas. Debt, debt, everywhere I see debt. Government, private, everywhere.  One of the things I have been thinking is the effects of the Bad Billionaires Bill will wear off by the 4th quarter bring on the possibility Mr. Combover will be looking in the fiscal cavern for more $ ( some Big Beautiful Patriotic Borrowing of course). Its only a matter time before that completely absurd fallacy about growing our way out of $40 trillion in debt is exposed for what it really is. The bonds market isn't going to like it and of course the Real Estate market won't either.

 Private debt is dominated by AI. I stand by my original assessment, Wall Street's dream come true has arrived, the never-ending cap ex cycle. But who can afford it? We are only 3.5 years in and there is a mountain of debt. I have been investing in tech for 30 plus years now and the same thing has always been true about tech. It's product cycles are too long and erratic AI doesn't even have a definable product cycle so far, its just a debt pit. How do you manage all this debt while being subject to that kind of cyclicality?? We saw what happened to software, it was overvalued and free cash flow could be jeopardized, the same thing could happen to AI. I think they have to commoditize sooner rather than later, if their model lends itself to that. The AI cost is already being dumped on Joe Sixpack, via private equity. Not a big private credit fan either . (JMHO)

[steadyquest]

My take on the war is much like my view of the covid spending.  Inflation is not an unanticipated product of these actions - but rather a primary objective of them - generating round after round of debt paydowns via currency devaluation.  The setup didn't just happen by accident - having a handful of companies carry the markets while the top 10% of consumers carry the economy.  And now the health of the big tech companies has literally become a national security concern, with them joined at the hip to the DeptOfWar.  So the freshly printed fiat can now discreetly flow directly into them and insure their stable market caps.  Apart from day or swing trading, of what utility are popular divergences or Elliott theories in the sphere of nationally centralized AI-fabricated market dynamics?

 

Oracle Joins Growing List Of AI Firms Supporting Pentagon National Security Work...

https://www.zerohedg...l-security-work