A negative divergence occurs when an index or stock touches a higher top while a technical indicator touches a lower top. That itself may not be an immediate sell signal.
A sell signal occurs when a technical indicator corrects from its overbought zone. A better sell signal occurs when the indicator drops below its neutral zone (viz. ‘0’ line for MACD/ROC and 50% level for RSI/Stochastic).
A positive divergence occurs when an index or stock touches a lower bottom while a technical indicator touches a higher bottom. That may not be an immediate buy signal.
A buy signal occurs when an indicator emerges from its oversold zone. A better buy signal occurs when the indicator moves above its neutral zone.
Divergence confirmation from several technical indicators are preferable. Investors should also await price/volume confirmation before taking any buy/sell decision.
Technical indicators of global stock indices showed positive divergences last week. Pullback rallies have followed.
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