Best Financial Markets Analysis Article Market divergences tell a story of something, or some investor segment acting contrary to the market's movements.

Currently ... the DJI, NASDAQ, S&P, and the Russell are showing an up trending condition.

But, what if Institutions were selling while you were buying ... how would you feel then?

This morning, we will look at the Inflowing/Outflowing levels of Liquidity in the stock market and then the DIA and QQQQ ... ETFs for the DOW and NASDAQ 100. We will also compare the current market movement and divergence of the DIA/QQQQ to what is happening relative to Institutional investors.

Let's start by looking at the amount and trend of Liquidity flowing into the stock market . This first chart shows the amount of Liquidity moving into the market compared to the action of the NYA (New York Stock Exchange Index).

What's important here, is the level of Liquidity and then its trending movement :
1. First, it is important whether Liquidity is in Expansion or Contraction. While in Expansion, money is flowing into the stock market and this always occurs during strong sustainable rallies. When Liquidity is in Contraction, money is moving out of the stock market. Currently, Liquidity is in Contraction.
2. Second, Liquidity has been in a trading range .
3. So, we have the indexes moving up while Liquidity is in contraction and in a trading range ... what is going on?

The answer is that Institutional investors have been selling while the smaller investor has been buying. Since over 50% of the market's volume comes from Institutional investors, that will be a big problem for the current rally. If Institutions seriously increase the amount of their selling, they will overpower the buying by smaller investors. If smaller investors seriously decrease the amount of buying while Institutions are selling, then that would also be a negative downside pressure. In other words, the risk levels are high in this current situation. (This stock market liquidity chart is posted every day on our paid subscriber site.) See the next chart ...

Now let's look at the action of the NYA and Institutional Index versus the action on the DIA and QQQQ.

What do you see?

The NYA and the Institutional Index have been moving sideways in a trading range ... not trending up like the DIA and the QQQQ. (The NYA is where all most of the Program Trading occurs. The Institutional Index represents the "top core holdings" held by Institutions.) The existing divergence and sideways trading range of these two is signifying that Institutions are "selling into this rally". Once again, that represents a high risk level for investors at this current stage.

If the Institutional Index of "core holdings" and the NYA (New York Stock Exchange Index) does not start trending up soon, the smaller investors will run out of steam and won't be able to keep the market moving up.

*** Feel free to share this page with others by using the "Send this Page to a Friend" link below.

Send This Page To a Friend

By Marty Chenard
http://www.stocktiming.com/

Please Note: We do not issue Buy or Sell timing recommendations on these Free daily update pages . I hope you understand, that in fairness, our Buy/Sell recommendations and advanced market Models are only available to our paid subscribers on a password required basis. Membership information

Marty Chenard is the Author and Teacher of two Seminar Courses on "Advanced Technical Analysis Investing", Mr. Chenard has been investing for over 30 years. In 2001 when the NASDAQ dropped 24.5%, his personal investment performance for the year was a gain of 57.428%. He is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools. As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL. He is an advanced technical analyst and not an investment advisor, nor a securities broker.

Marty Chenard Archive

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.