As noted on Wednesday, large-cap stocks in the US are diverging from small caps but the entire US equity market has also become detached from other markets, especially in Asia, explains Ian Murphy of MurphyTrading.com.

The ASX 200 in Australia has been bullish all month whereas the Nikkei 225 in Tokyo displayed more volatility, possibly related to uncertainty surrounding the Olympics.

asx

However, China and India are a different story entirely. The CSI 300, which tracks the top 300 stocks on the Shanghai and Shenzhen exchanges is bearish on a daily chart and has been since March. It is also testing support in the region of 4900 for the third time. The Sensex in Bombay (Mumbai) is also heading down as new cases of Covid continue to rise.

spx

In contrast, the S&P 500 (SPX) is in the stratosphere above the 3ATR channel on a weekly chart. Oxygen is thin up here and breathing is challenging, so we can expect a pullback at some stage as happened on previous occasions (black arrows). When that will occur is anyone’s guess and the index can stay at this level for months at a time, but the historic move from here is down.

As fewer US stocks participate in the rally, good swing trading set ups are getting harder to find. Don’t chase trades for the sake of something to do. Stick to your strategy rules and only take valid triggers. Protective stops are more important now than ever.

Learn more about Ian Murphy at MurphyTrading.com.