Bearish Negative Divergences

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This chart displays an inter-market analysis viewpoint that technical traders should be aware of. The first data point to consider is labeled "A." Here we see the EUR/USD and GBP/USD peak and negatively diverge with the Dow Jones and Xinhua index. Historically, the GBP and EURO have shared a high degree of positive correlation. The breakdown of this currency/index correlation indicates major market weakness for the most recent leg of the index rally.

The data point labeled "B" displays another negative divergence for the currency/index relationship. The EUR/USD AND GBP/USD both make lower highs when the Dow Jones makes another new high. Also at point "B", we see the Chinese Xinhua Index make a lower high against the Dow Jones Index. The Xinhua divergence is the next major sign of weakness. This breakdown of the global index correlation is a bearish technical signal which should not be ignored. If the Dow Jones does make a new 52 week high, a continuation of the bearish Xinhua divergence is expected. I would look for Brazil, Russia, or India to negatively diverge with a new Dow Jones leg higher. A wider spread negative global index divergence would additionally confirm a strong bearish outlook for the months ahead.