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zTheory: Hidden divergence with MACD. A real-time example.

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Here's a real-time example of a "hidden divergence" between MACD and price. I'd like to share the way I translate it into a human language.

You are aware of the "effort versus result" rule, right? Such as, you expect your car's engine to start when you turn the key or to feel warmer when you put on a sweater. I guess you are. So think of MACD as of an effort indicator.

Now please notice that point 6 is higher than point 5. That means more effort to the upside. Comparing this with what price did, we see that a new high was made. This is perfectly normal, since upside efforts bring upside results.

In the second case, however, following the same logic, we see more downside effort at low 8, as opposed to low 7, which did not result into low 4 being lower than low 3. In other words, despite all of the downside pressure, price was very strong and is likely heading higher.

Hope, you will find this helpful and let's see how this plays out.

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