The analysis of convergence and divergence between indexes and other data seeks to find leading indicators where there is confirmation or non-confirmation of trends.
Where trends do not line up (e.g., one is trending downward with lower troughs and the other has “higher lows”) there is “divergence”, and non-confirmation of what was thought to be a trend in one index.
This has been shown not to be completely reliable as a trading signal, but for analysis that bridges the gap between fundamental and technical, it can be useful. Dow looked for the Primary Trend that would over-arch the shorter trends and last a few years.
The analysis of convergence and divergence is used in many technical methods used today for short-term and intraday trading. When a price trend is diverging from an indicator or moving average line, it could mean that a reversal is nearing.
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