Tuesday, July 19, 2011

MONEY FLOW DIVERGENCE

I often keep tabs on the weekly Chakin money flow indicator, especially when I'm expecting an intermediate degree correction. More often than not there will be a divergence in money flow at intermediate tops as smart money exits ahead of a correction.

This indicator also diverged at the last two bull market tops. It is now showing 
a huge divergence that I think is probably indicative of a third cyclical bull market top forming.

17 comments:

  1. Excellent illustration. I have seen other divergences pointed out on other sites. Enough all together that it must be respected. So much so that I agree, I believe we have topped out and are heading lower, though it will certainly be a rocky road getting there, just like the previous instances. Keep up the good work.

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  2. This looks more like wishfull thinking rather than divergence.
    As one can clearly see in the first two examples, there are two CMF tops or highs on which divergence was based.
    Price made higher high while CMF made lower high.
    In this last example there is no lower high in CMF, hence there can be no divergence.CMF first needs to make new high

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  3. I respect most of Gary's comment but this chart really do not show the divergency. It has not made a higher high with lower volume of money flow in. Yes, we are in a inflection point in the stock market and near the cliff. Sooner within a week or two, we will know if Mr. market wanted to jump.

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  4. Let me be clear, because it seems like a lot of people want to read something into my writings that simply isn't there.

    I'm not suggesting anybody short the stock market. The Fed has made it clear that they are going to try and keep asset markets levitated. The battle between the Feds printing press and deteriorating fundamentals is not the kind of environment where longs or shorts are gonna have much success.

    Recent economic data and the jobs report has made it abundantly clear that the economy is starting to roll over. If the economy is heading into another recession there is no way the Fed will be able to keep asset markets inflated.

    I believe the economy is starting to roll over into the next recession.I think that means that the stock market is now in a topping process.

    By the way, there is a clear divergence as money flows topped at the first of the year while the stock market continued considerably higher into May.

    During this entire period money flows have continued to decline even during the rallies. Now in July the weekly money flows are threatening to turn negative.

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  5. I agreed with Gary's veiw,the economy is getting worse not better. S&P and NAS is forming a clear head and shoulder pattern awaiting for last nail in the coffin. This time though will be unlike 2008, the duration may take longer and slower until a flat and quiet market prolonged bottom. Prepared to enjoy a couple of years stock market vacation. Gold is already too high in price in reality, and I will leave it to the people willing to take the risk.

    Good Luck Gary and the fleas.

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  6. Tobby, I hope you can see Money flow divergence on all Money flow peaks there (eg: 2009, 2010) but market has continued upper. In other words, your interpretation is invalid!!

    Well, market may fall from here but it wouldn't mean it is because you found out divergence.

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  7. There is no divergence whatsoever.
    Falling money flows mean one thing, divergence is something else.
    I don't know why Toby insists on it, when in his own words he doesn't care for indicators,oscillators and technical analysis, only cares about cycles,market breadth,put to call and stuff like that.So, better leave divergences to us technical analysts.
    I come to this site to see Toby's perspective based on his cycle theory's because that's where his strength is.

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  8. It's actually the cycle count that makes me believe that this market is topping.

    The next four year cycle low is due sometime in 2012. We have been in a secular bear market since 2000. In a secular bear market the move down into a four year cycle low always corresponds with a recession. A recession means a cyclical bear market in stocks.

    Cyclical bear markets tend to last year and a half to two years. So in order for the four year cycle low to bottom in the normal timing band this market has to top some time this year.

    The volatile back-and-forth action of the last several months and test of the March lows is suggesting that this market is already well into the topping process.

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  9. The POMOs and Fed manipulation have rendered all technical and fundamental analysis, tools and charts absolutely useless. Precious metals prices will be contained and controlled like EVERYTHING else. If gold/silver were allowed to continue their natural upward rip, concerns and rumors about the dollar might abound, and we wouldn't want that now, would we? The "no-limit" credit card of Bernanke will see to it, using "whatever means necessary" to quell any rumors and crush any doubt.

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  10. If that was the case then how do you explain gold rallying 10 days in a row?

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  11. I am saying gold/silver WILL BE contained/crushed through stealth manipulations when the $%&t finally hits the fan i.e. underlying fundamentals may justify $3500 gold or $150 silver in the near future in the face of Fed's perpetual printing press, but JPM will step in and take care of business should PM prices get out of control. They have done it before, what makes u think they won't do it again??!
    {this is not to say that people cannot catch the wave up and profit before PMs are inevitably suppressed; my point is that it is very difficult to use market tools in an environment where the markets are heavily and relentlesly manipulated}

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  12. How can you, with a straight face, claim there is manipulation after watching silver go from $8.50 toe $50 in two years?

    The manipulation nonsense just never ceases to amaze me.

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  13. haha, how can you with a straight face say that there's no manipulation in the markets? In fact you have conceded that yourself many times (Fed is gonna fight the bear tooth and nail, etc etc -- isn't that manipulation?). Today's manufactured rally is a case in point. Why should the PM markets somehow be immune from manipulation?
    Again I'm saying all this not to criticize you or your work but to express the challenges of investing in rigged markets.
    Of course there's always executive orders ('6102') or Gold Reserve Acts that they can pull out of the hat :)

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  14. Sure the Fed is going to print money and try to levitate the stock market. Bernanke has said as much himself. I take him at his word.

    But there is no need to manipulate the precious metal markets. The money supply is not tied to gold anymore. Gold is meaningless. The Fed is free to print as much money as they like.

    So what possible reason could there be to throw away billions of dollars trying to suppress a meaningless market?

    Not to mention gold is a 24-hour market and unless the Fed can find a way to stop Chinese and Indians from buying gold there is no way for them to suppress price.

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  15. Sorry but since you conveniently always disappear when the market goes against you and never own up to your mistakes even though you want everyone else to, you have lost your privilege to post on this blog.

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  16. Another very suspicious clue to a top is the propensity of a soon-to-correct market is at the peak of earnings report and the positive reactions. If we go back to the last top, it was at end very end of April 2010. The market turned down on the first day of May, after selling down 25 %.

    Declining new highs and continuing light volume makes for a very susceptible stock market.

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  17. Nice work Toby. I stumbled on your commentary a couple of months ago and it struck me as well thought out arguments. I've done well very much thanks to you.

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