Sunday, August 23, 2009 EST

The indexes reached higher highs again this week with the S&P 500 leading the pack.

The bullish case is the break out to a new high with the Advance/Decline Line (ADLine) showing a broad based upward movement. There is a bearish sign as well.

First NASDAQ chart below reached a higher high but not as dramatic as the S&P 500. Recently the NASDAQ has been the first to break down when pull backs have taken place.

RSI turned up from 50 which is bullish but the bearish divergence shows that a pull back may be in order soon.

The bearish divergence pattern on the daily chart is the first real warning sign in this impressive rally thus far. This pattern is not confirmed on the weekly, if it was it would be a much strong case for a pull back. Still a bearish divergence pattern on a daily chart is something that traders must be aware of.

We can play off of this pattern by buying a SHORT ETF on a rally to protect some long profits and tighten stops.

Looking at the Short NASDAQ ETF below shows a RSI bullish divergence pattern. Since this is a Contra or SHORT ETF it means buying a short ETF is starting to look appealing on the NASDAQ.

 
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