A negative divergence like this, when the SMFI is falling faster than the Dow, is generally a sign of selling ahead and lackluster returns for stocks. That is, until the “smart money” starts buying again.
The good news is that most stocks and sectors are already approaching oversold levels now, and the recent correction is creating more attractive prices for long-term investors, especially in select biotech and internet stocks.
So keep a watchful eye on the market’s direction during the all-important last hour of trading. Look for more buying on strength into the close, rather than selling into market weakness, as a first sign that stocks are stabilizing and the correction may be ending.
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