Divergence and RSI Graph 1 Mr. Tetsuo Inoue
Globally, the current rapid rise in the world's stock markets, driven by central banks around the globe consistently stepping up monetary easing and liquidity provision, is being dubbed a "Corona bubble." However, while there is movement to judge where the chain of "buy to go up; go up because you buy" will stop from a technical overheating perspective, there are strategists who are looking further ahead and have begun to think that “even if it stops, it may be bought again after a slight adjustment.”
Last night as well, it was the copycat market of the past few days.
April’s U.S. manufacturing durable goods new orders (seasonally adjusted) were released by the U.S. Census Bureau, showing a 13.0% month-on-month decline, larger than the previous month’s 10.3% drop, but the view of “it’s April numbers, so May might be better?”—an opinion lacking solid basis or backing—spread, and the market did not yield to the figure that “orders for nondefense capital goods excluding aircraft declined 6.1%” (a figure watched as a leading indicator of business equipment investment).
Furthermore, in the much-anticipated May numbers—the ADP National Employment Report—nonfarm payrolls (excluding government) fell by 2.76 million from the previous month, but because market expectations had been a decrease of roughly 8.75 million (about 9 million), it was reported as a positive surprise. Likewise, May’s ISM nonmanufacturing index was not as bad as market expectations, so the risk-on move did not stop; the bond market, the counterpart in the “stocks, crude oil vs. bonds, gold” (risk-on vs. risk-off) relationship, fell and the yield on the 10-year U.S. Treasuries rose temporarily by 0.09 percentage points to 0.77%, ultimately closing up 0.06 percentage points at 0.74%. This 0.77% yield was at the level seen when concerns about auction failures were raised about a month and a half ago amid large-scale U.S. fiscal spending.
Today and tomorrow, four graphs will be attached.
There are three divergence indicators (Dow, Nikkei) and RSI (Dow, Nikkei); regarding the total of the three divergences (the 5-day moving average), the figures as of yesterday were, for the Nikkei: 20.40%, for the Dow: 13.20%.
What to note here is that the red band, marking a warning zone that exceeds the “speed limit,” shows the Nikkei at 10–15% and the Dow at 5–7.5%, meaning the Nikkei’s threshold is higher. In such a surge that begins from a rebound, the Japanese market often reacts more vividly than the U.S. market due to previous heavy selling, so it appears this way.
Therefore, this time the five overheating signals have fully lit up earlier on the Nikkei, and as of yesterday they have been in that state for five consecutive days; the Dow, in this morning’s “Sign” release, has increased to four signals but has not yet reached full ignition. However, the day it exceeded the warning zone and entered “out of the speed limit” is colored yellow on the left. The Dow reached that zone in the latter part of last week, and the Nikkei has reached it as this week began. Tomorrow I will attach the Total RSI, the MVP that recorded the calmest numbers up to last year during this “Corona Shock.”
