good question...let's put it this way: since when has the NAZ a/d line been good for anything? it would have warned you off the biggest rally this index has ever had.
still, it's basically a bullish divergence. who knows HOW bullish. look at the chart and draw some trendlines...you'll see right away where various resistance levels are located. the first resistance is dead ahead: both the declining 50-day EMA and the flattening 200-day EMA are right above the index and poised for a bearish cross-over....
then there's the extended lower boundary of the bear flag we just broke out of last week...then the upper boundary (that would make for a pretty decent rally actually).
just for curiosity's sake let me give you an example of a roughly similar chart structure that ended in a failure: after the crash in '29, the Dow made a rally that lasted actually several months and produced a bear flag too. finally, it broke down from the bear flag, made a slightly higher low than the crash low, accompanied by a lower low in the a/d line (normally a bullish divergence) made a smallish three-wave rally off that low and then it went into the abyss without further ado and proceeded to utterly destroy all dip buyers until '32.
in the 73-74 bear market, there were bullish a/d non-confirmations detectable TWICE along the way: first in late August '73, with price (the NYA in this case) making a double bottom with a lower a/d line low, which led to a reaction rally that actually surpassed the high of the previous reaction rally, trapping a lot of people right then and there. the second divergence occurred in early '74, with price making a lower low, and the a/d line making a higher low. a feeble rally of short duration ensued, followed by an acceleration of the decline.
so you see, there are no guarantees regarding the outcome of that little divergence. it almost always leads to some sort of rally, in some cases a sizeable one, in others one that just isn't worth it.
regards,
hb |
