How to Determine the Bearish Divergence from MACD

 

The bearish divergence is opposite to the bullish divergence. If you want to know more about the bullish divergence, you can visit:

http://top5indicators.blogspot.com/2013/09/how-to-determine-bullish-divergence.html

A bearish divergence is formed when the general market or a security reaches a higher high price level, but the MACD Line has a lower high pattern.

In the uptrend market, the higher high phenomenon for the stock market or a security is often detected. However, the internal weakness hidden in the MACD displays the lagging momentum. This contracting information might provide warning signs to investors. This signal often foretells a near-term reversal or substantial share drop.

The following chart shows the S&P 500 index reached the record high in early August 2013, but the MACD did not follow the pace and reached a lower high. It illustrated the internal weakness. The bearish divergence was identified. Then the market experience a correction lasting almost a month.

 

                               Source: stockchart.com, compiled by blogger.

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