Three Divergences Demanding The Stock Bulls' Attention

Monday, 17 December 2012

Longer-term divergences tend to provide the most concerning backdrop for the current relative strength of stocks. BofAML's technical research analyst Mary Ann Bartels is concerned that the major negative divergence between market breadth and the S&P 500 indicates a *risk of a deep correction in 2013*. As she notes: "Although the advance-decline lines have moved up with the US equity market since mid November, bearish divergences remain in place for the S&P 500 and NYSE Stocks advance-decline. *This is an important negative divergence as we enter 2013.*" Add to that the divergence between NYSE net new highs and the divergence with Transports and markets face a triple threat.

*S&P 500 vs NYSE Advance-Decline line divergence...*

*S&P 500 vs NYSE net new highs divergence...*

and the *S&P Transportation index is significant underperforming the Index...*

and one more thought - *2013 is the first year of a new Presidential Cycle.* The first quarter of the first year of the cycle is down 1.33% on average, but the weakest period of the Presidential Cycle is from a July/August Year 1 peak to a September Year 2 (mid-term election year) low. *The average decline over this period is 4.31%.*

Chart: BofAML

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