By itself, the daily chart of the S&P 500 looks just fine. It shows a steady uptrend. There are no big moves in either direction. It’s just a slow, grinding move higher – week after week, month after month.

The bulls are firmly in control. And even when the stock market’s “crystal ball” warns of an impending decline, the selling pressure is limited to just a few hours. Then the index gets back to marching higher.

Take a look…

There’s absolutely nothing wrong here. This chart is a picture of higher highs and higher lows. That’s bullish. And, since we’re in a seasonally strong period for stock prices, the bulls should have nothing to worry about.

EXCEPT… (oh, come on, you knew that was coming)…

There’s a whole bunch of other charts that don’t look quite so bullish. For example, here’s a chart of the Russell 2000 Index…

While the S&P 500 has been marching higher, the Russell 2000 has been declining.

So has the Value Line Geometric Index…

And it’s not just the broader-based indexes that are diverging from the S&P. Key sectors are trading lower, too.

Look at the Dow Jones Transportation Average…

…the Financial Select Sector SPDR Fund (XLF)…

…and the iShares Nasdaq Biotechnology ETF (IBB)…

Of course, we also have the recent breakdown in the iShares iBoxx High Yield Corporate Bond Fund (HYG), too…

It’s rare for the action in so many sectors of the stock market to diverge so drastically with the action in the S&P 500. At some point, either the strength in the S&P is going to help turn all of these other sectors around and lead to a remarkable year-end rally… or, the weakness in all the other sectors is going to pull the S&P lower and stocks will suffer a significant correction.

It seems to me the odds favor a correction. But it’s hard to bet that way until the price action on the S&P 500 turns lower.

Keep an eye on the 2566 level on the S&P 500. That was last week’s low. If the index breaks below that level without moving to new highs first, then we’ll have a lower high and a lower low in place.

That’s a downtrend, and it will likely signal the elusive correction is underway.

Best regards and good trading,

Jeff Clark

P.S. My Delta Report subscribers take advantage of divergences like these every week… and it all comes back to a “secret key” I developed 17 years ago.

After almost losing my entire life savings in a single day, I used this technique to turn the trade around… and it completely changed my life.

To read about how this “secret key” can work for you, click here…

Reader Mailbag

In today’s Mailbag, Jeff answers a couple of subscriber questions…

Jeff, can you recommend a service for real-time quotes and charts to use with your trading recommendations?

–  Robert G.

Jeff’s response: Just about every brokerage firm offers real-time quotes. Most also offer charting services. Some brokerage firms might charge clients a small monthly fee for quotes and charts. But, when trading options, it’s crucial to have information in real time. So, it’s worth paying a bit for it.

I prefer to have a few extra bells and whistles on the charts I use. So, I subscribe to Stockcharts.com. They also offer a free service.

Wow! I’m in my second month with your service; it just surprises me about the complaining about your advice. Your pick of SPY from last Friday was clearly labeled high-risk. I got in Wednesday at $0.40 and out at $1.10 on Thursday. Your pick clearly stated “risk” and I was willing to wait until I got my price.

Your information helps me connect the dots. Thank you! No one can know with 100% what is going to happen; I’ll take your thoughts every day. I’m going to lose on ABX and I’m still very happy with your system. 3 out of 4 winners works for me. I just didn’t want any more risk with ABX… next trade please! Very happy after almost 2 months!

–  Jeff R.

Jeff’s response: Thanks for your email, Jeff. I’m glad you’re enjoying and profiting from the Delta Report. I do read all the feedback we receive. It’s usually FAR more positive than negative. But, I’ll often respond publicly to the negative feedback when the response can reinforce a trading discipline, or give me a chance to explain a strategy in more detail.

Thanks for letting me know how you’re doing.

And we heard from a few more on the recent Delta Report trade action…

In contrast to John taking a 50% loss on the recent SPY put trade, here is how I managed it.

When Jeff put on the trade, he said he may be a bit early, and I agreed so I waited (I also don’t like putting on trades on a Friday). Jeff provided updated commentary every day in Delta Direct. As the market moved higher, I waited.

On Wednesday in the morning report, Jeff wrote “We are very near a reversal point – at least for a short-term move lower. I won’t be surprised if that reversal gets started today.” In the 10:40 update, Jeff stated that the market had reached the 2595-2600 target and he would not be surprised if the market lost a lot of ground later in the day. When the market turned at that point, I bought my SPY $259 puts at 10:48 am. When Jeff said to sell half, he also stated he thought the market could still move down a bit more, so I waited. Friday morning I sold my puts for a $0.50 gain in two days.

To me, the actual commentary is as important as the trade parameters. Ultimately, we are responsible for our own trades, whether we follow Jeff’s suggestions directly or modify them. Jeff’s commentary is invaluable and the trades are an added benefit. Then end result is always on us whether a good trade or bad. Accept the end result and move on.

–  Tim H.

I love the honest commentary that you provide. Keep doing exactly what you do. You explain your thoughts and position very well and I appreciate the time and effort you provide in giving us, your subscribers, a clear path to understanding why you do, or do not, make your recommendations.

Thanks, and I look forward to more of the same.

–  Dean S.

Hi Jeff, your recent bearish put trade was a real winner for me. When you presented the trade I looked at it and decided you were too early, as the market seemed at the time to be on a one-way bus. I realized I might miss the boat if I didn’t put it on.

A day or two later I bought the $257.50 SPY put for $0.72. Two days later I sold them all when you said sell half, for a 71% gain in two days. Now, I only did 5 contracts because I take it to heart what you say about the potential of losing all your money on a trade, so I never bet big on these kinds of trades. I absolutely love your service, but fully realize it’s up to me if I put the trade on or not.

–  Gene M.

That’s another reason I like you Jeff. No trade this week or last week is fine with me. No trade in a month is fine if you’re not convinced of its merit.

–  Gene M.

Are you trading around the divergences in the market right now? Have you been able to do so in the past?

If you have any trading experiences you’d like to share, or just a question or comment about the Market Minute or Delta Report, let us know right here…