Market Journal: IG CDX Divergence
Topping process well underway for a correction into March.
Discussion
IG CDX refuses to confirm the breakout in SPX/NDX, similar to the topping pattern seen in January/February 2023 and then again in July 2023. In both cases SPX ultimately went on to break below the divergence level, mildly so in March 2023 and materially so in September/October 2023.
Anecdotal equity market sentiment is rapidly turning arrogantly bullish about the prospects for AI, NVDA, and Semis, and the seeming impotence of the Fed. And while of course this can continue for a bit longer, the IG CDX divergence and very weak market breadth suggests a stiff correction is close at hand.
Given the push to circa SPX 5000, 10-15% lower by March 31 is likely.