A previous post discussed a divergence between the SPX and the intermarket analysis, and in particular the TNX which is the 10-year Interest rate index. This video studies the divergence between the 4 major indices – SPX, NDX, RUT and the DJIA.
This post is taken from a situation in 2014, but it’s a great example to show the divergences in Intermarket analysis, and how that gap generally closes in.
The RUT is clearly in correction territory and is down about 10%. The Nasdaq (NDX) which was also down close to 10% has recovered about half that loss and is down about 5%. The SPX and the DJIA is at all-time highs, or close to it.
Obviously, this is quite a large divergence between the major indices, and once again the conclusion is – something has to give. Either the RUT and NDX have to move up to “catch up” to the other two – or the SPX and DJIA have to come down. Given that we’re seeing a divergence in the Bond markets also, perhaps this is a bit more evidence that a correction could be underway.
Watch the video below for a detailed discussion on Intermarket analysis.