I’ve written quite a few times about divergences in momentum and how they can give good clues as to an imminent trend change. The theory is that acceleration will slow down before the actual price change occurs, much like taking the foot off the gas while driving.
There are numerous popular indicators which can be used to gauge this imminent change. The attached chart of Intel , INTC indicates such a divergence appearing on an hourly chart. To be clear, we never know precisely if this will signify THE change in direction, but we can at least isolate the threshold level at which risk can be determined if we are wrong. The variation in direction of the simple indicators attached to INTC gives us some confidence that the downside momentum has abated.
Still, we’re a long way from an uptrend, but having a risk reference point is key to assess risk has been established. We’ll likely see other large capitalization stocks follow this trend change such as JNJ and MSFT. As time moves on, this will stop the downside momentum of the markets and will set the stage for a possible trend change.