Two 'Triple Bearish Divergences' Are Simultaneously Hitting The Stock Market Right Now

BofA Merrill Lynch technical analysts Stephen Suttmeier and Xue Jiong see two “triple bearish divergences” emerging in the stock market as the S&P 500 rolls over from new all-time highs made after last Wednesday’s shock FOMC decision to refrain from tapering back quantitative easing.

The first divergence can be seen clearly in the chart below. As the S&P 500 continues to make higher highs, the percentage of S&P 500 stocks above their respective 200-day moving averages is making lower highs.

“Both the S&P 500 and percentage of S&P 500 stocks above 200-day moving averages have stalled at key trend line resistances,” write the analysts in a note to clients. “Lower tops for the percentage of S&P 500 stocks above 200-day moving averages and higher highs for the S&P 500 is a triple negative divergence.”

The second triple bearish divergence is in price momentum indicators — specifically the Moving Average Convergence-Divergence (MACD) and the Relative Strength Index (RSI).

“The S&P 500 has three higher highs, while weekly MACD and RSI remain in downtrends off those S&P 500 highs — this is a potential triple bearish divergence,” say the BAML analysts.

The bottom line: “This sets up triple negative divergences. With overbought short-term indicators, the risk is S&P 500 resistance near 1728-41 holds for now.”

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at