05Jun3:30 pmEST

Divergence Alert: Something is Amiss

The slide in crude oil is a notable divergence to the rally in equities today.

Indeed, the first daily chart, below, of the USO ETF for crude, we can see as much. Equity bears will argue that the crude divergence is the true canary in the coal mine, so to speak, portending the ultimate demise of the current bounce. 

On its face, it is hard to argue with that potential scenario, given how correlated the slide in crude seemed to be with equities in the fourth quarter of 2018. In fact, crude topped out this spring not long before equities did, too. 

However, on the second daily chart, below, junk bonds (and high yield corporate bonds) are green and diverging from crude. This divergence would seem to indicate that the crude slide may be closer to the end than the beginning, since we know the HYG and JNK ETFs tend to have some correlation to those debt-ridden oil firms. 

Hence, this is a "pick your bias" setup, with oil giving equity bears hope while JNK favoring equity bulls. 

In the coming days I am looking to see if USO can find support at oversold conditions and confirm both the strength in equities as a whole as well as the HYG JNK bounces today. 

Bulls Have to Learn Their Cl... Cooling Off, One Way or Anot...


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