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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: John Hunt who wrote (10356)	12/6/1997 11:14:00 AM
From: vegetarian	Read Replies (1) \| Respond to of 18056

>>From the chart, an identical divergence occured in late Jan and led to the drop in March and early April. stockmaster.com << Have not looked at the longer term chart but another interesting observation can be made if you look at the chart somewhere in the mid August frame where they diverged again for a short period and the result was different, it seems: -When S&P and small cap diverge, with small cap going down and S&P going up, the small cap pulls S&P down into an ensuing correction -When they diverge and S&P is going down and small cap goes up, the small cap pulls S&P up in an ensuing rally (the Aug diverson) So essentially it would mean small cap direction when divergent from S&P large caps, drives the direction of the large caps; this would be a very counter-intuitive interpretation from what we have learned from text books about behaviors of stocks, that is large caps being the leaders in the market and deciding its direction. I hope the magnitude of the subsequent drop is proportional to the product of the time length of the diversion times the magnitude of the diversion ;-), hey I could hope for the drop to be proportional to the exponent of.... but then it may sound incredible ;-) (I did not measure it for the last two cases though). Wonder if there are any theories relating to such divergences?