Good day. I hope you were able to spot bullish divergences this week on your charts. Now we are going to cover Bearish Divergences. If you'll recall Bullish Divergences happen in a downtrend. Therefore a Bearish Divergence takes place in an uptrend; higher highs and higher lows. Also remember they can take place in any time frame and in any stock, commodity, ETF, index or Futures contract.

Below is a daily chart of Amazon. It was on a nice uptrend from Sept. through the middle of January. But if you look at the MACD Hist bars they tell you a different story. As price rose from Sept. to just after Nov. 8th, the MACD Hist bars made a series of lower highs. Something is happening behind the scene that does not support the rise in price. This again happened in late November through the middle of January.

As you recall from last week. The divergence patterns are not buy points but "headlights that help you see down the road." (quote from Dr. Alexander Elder) Remember do not trade with divergences themselves as signals. It can take a long time for divergences to play out.

Here's a chart on CELG in the 60M time frame.

Please note that we will probably cover the topic of trading with the trend after my articles on divergences. In the meantime you'll see in the chart above the 200 bar ema is above the price action and heading downward. Indicating a downtrend. Once your shorter ema's have crossed and you get a bearish confirmation candle you could enter a trade. This is only one way of using divergences in trading.

Below is a daily chart of QQQQ. It is an ETF based on the Nasdaq 100. In this chart you'll see both Bullish and then Bearish Divergences.

Well I hope you feel more comfortable spotting divergence using the MACD Histogram now. This week as you're flipping through charts why don't you start trying to spot them with different indicators. There should be a terrific opportunity to spot Bearish Divergences since we took a rather good tumble this last week. Remember a Bearish Divergence takes place in an uptrend. As price makes a higher high the indicator will make a lower high or slope downward. This is not an indication to trade. But an indication of weakness and a future opportunity to trade with even greater downside momentum.

Next week we will talk about using other indicators to spot divergences such as the WM%R, RSI, Stochastics and more.

Authors who have helped me:
Dr. Alexander Elder
WendyKirklandy
John Murphy