Negative Divergences Often Warn of Declines: Bitcoin & Gold
The CMT Association is proud to publish this guest post from Louise Yamada CMT . Louise was a Managing Director and Head of Technical Research for Smith Barney ( Citigroup ), and while there, was a perennial leader in the Institutional Investor poll and the top-ranked market technician in 2001, 2002, 2003 and 2004. Louise was the 2016 recipient of the CMT Associationâs Lifetime Achievement Award.
Louise has made her complete report, in its original format, available at LYAdvisors.com.
In these examples we use the moving average convergence divergence ( MACD ) indicator to illustrate the concept of divergence, to forensically evaluate Bitcoin and to make some forward looking observations on the gold market.
* Negative momentum divergences often warn of impending price consolidations or declines.
* Divergence forms as price moves to a new high while the oscillator fails at a lower high, creating a negative divergence between the oscillator and price.
* Divergences of this type suggest that the underlying momentum may be waning.
Divergences carry different implications depending upon their time frame.
* Daily perspective divergences suggest either a consolidation, or a pullback in an ongoing uptrend.
* Weekly perspective divergences suggest a more sustained consolidation or even a reversal of trend, particularly if important support is violated.
* Monthly divergences have the potential to result in a more sustained decline or even to reverse an uptrend.
MACD sell signals give validity to divergences.
* Monthly signals have much more weight than weekly and daily.
* Monthly divergences donât always occur prior to monthly MACD sell signals
* But when a sell signal does occur it offers a structural warning.
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