Positive Market Divergence

Table of Contents

These alerts are similar to the Sector breakout/breakdown (from close) alerts.  These are optimized to work well in the low volume times, such as before and after official market hours.

The Sector breakout/down (from open/close) alerts look at a number of possible sectors and indexes, and choose one to match each stock.  They make this choice based on how well the prices match during a typical trading day.  The market divergence alerts try to compare each stock to QQQ.  This is a popular point of comparison because it is a broad based index and it is so liquid, even before and after normal trading hours.  The market divergence alerts also use a slightly different algorithm than the previous alerts to compare the stocks.  This algorithm pays more attention to the previous close and minimizes the effects of the opening prices.  As with the previous alert types, some stocks do not usually move with QQQ, so we do not report alerts for those stocks.

If you do a lot of trading before the open or in other low volume times, these alerts are ideal.  But they are also useful to traders who only trade at the open and other high volume times.  For instance, take the strategy of open order enveloping.  In this strategy traders assume that the specialist is manipulating the opening print, and they try to take advantage of this.  They start shortly before the open by using yesterday's close and the current price of the futures to predict a reasonable opening value for a stock.  They assume that the actual opening price will often differ from the expected value, but will usually move toward that value after the open.  After placing your initial orders, use the market divergence alerts to watch your stocks.  You will see alerts if the stocks move away from the expected value, moving against you.  You will see no alerts as long as the stock moves toward the expected value.

More options related to these alerts are listed below.

Alert Info for Positive Market Divergence [FDP]