Don't Ignore This Chart!

Positive Divergence Suggests CA Likely To Resume Uptrend

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CA Inc (CA) topped in March 2015 and was in the midst of an 8 month downtrend - until last week's action.  Prior to the break of this downtrend and key 20 week EMA resistance, CA had printed a fresh weekly CLOSING low that was accompanied by a higher MACD, a classic positive divergence.  It wasn't easy to see the positive divergence, especially if you use candlesticks as I do.  Remember that the MACD uses CLOSING prices, not opens or intraweek lows.  One glance at a candlestick chart won't always reveal that positive divergence.  That's when a simple line chart has an advantage because the line only connects closing prices.  It eliminates all the other noise on the chart.  Take a look at the chart of CA below as a perfect illustration:


I rarely use line charts, but spotting positive and negative divergences is much easier using line charts over just about any other chart form.  The positive divergence suggested that momentum to the downside was slowing and CA is in the midst of a longer-term uptrend.  Last week's breakout above 8 month trendline resistance indicates the probability of higher prices ahead.

Happy trading!

Tom

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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