The Death of The Divergence

I love technical analysis but like any analysis it can be done poorly.

One of the most common signals people highlight is the bearish divergence.

Price makes a higher high while momentum (RSI) does not confirm.

That’s great observation….but it’s not analysis.

The analysis (skill) is taking that observation and giving it context relative to the rest of the market information.

Context of when and how a single observation is occurring is everything. 

Take semiconductors. 

$SMH - VanEck Semiconductors ETF

Many were quick to highlight the recent divergence....once again...great observation. 

But most failed to do the analysis. 

The divergence occurred above support, above a rising 200-day, with RSI holding in a bullish regime above 40.

That’s a warning sign within strength, not weakness.

Divergences are common, and in Bull markets they’re almost always bearish by definition because price is rising.

When breadth is strong and risk-on metrics are at highs, you can discount them.

The observation says panic. The analysis says chill. 

The skill isn’t making an observation that can be taught in a TikTok. 

The skill is knowing when the observation matters.

Bull markets are where bearish divergences go to die. 

Semiconductors making new ALL TIME highs today are just the latest example. 

Anyways, that’s my two cents.