Squawk Morning Briefing: Intermarket Divergences

This morning we see Dow futures making new highs while S&P 500futures remain below last week’s peak. We continue to see signs of possible topping action and intermarket divergences are not uncommon during the topping process, but that is different from saying it is a sign that a top is in place. Whatever the scenario, the divergence gives us a useful tool for examining the possibilities.

Both the DJIA and the S&P have an apparent impulsive decline from last week’s multi-year high. In both markets that could be either the end of an expanded flat or the beginning of a larger move down. But it doesn’t need to be the same pattern in each. That is, it is possible that the two indices are putting in different patterns with the decline in the DJIA completing a correction and needing a new high while the S&P 500’s impulsive decline starting a larger move. If that were the case then any continued bounce in the S&P would merely complete a correction up from last week’s low while in the DJIA it would complete a fifth wave up before turning. What is important to note is that in this scenario both are moving in generally the same direction with an additional move up before a decline. The only difference is that the bounce in DJIA would carry to a new high.

Of course the patterns don’t need to diverge in order to move in the same direction. Both could fall together from here or rise to new highs in unison. Today’s videos cover the possibilities in more detail

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Elliott Squawk delivers thorough market preparation every morning in time to take action during the trading day. By combining up-to-the-minute futures activity with traditional end-of-day analysis from cash indices, you receive analysis based on the latest conditions as the trading day sets to open. Each issue of Elliott Squawk goes beyond traditional Elliott Wave analysis because we recognize that trading Elliott Waves is much more than just looking at the most likely current count. Squawk will prepare traders to assess the market action as it unfolds by answering questions that any Elliott Wave trader should consider:

• What price levels and wave motions would confirm an expected move?
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• What intermarket movements merit special attention to understand likely price trends?

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