‘Hidden Bearish Divergence’ Is Pointing to a Correction — Here’s When

by | Jul 15, 2025

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I was analyzing some divergence patterns the other day, and what I found reinforced something I’ve been discussing quite a bit lately.

When someone asks me if I see divergence in the current market, the answer is absolutely — and it’s showing up in multiple places that suggest we should be preparing for a pullback.

Here’s what I mean by divergence…

We’ve got higher highs in price while momentum indicators are disagreeing, along with relative strength showing disagreement. This isn’t just a minor technical hiccup — it’s a pattern that typically precedes market corrections.

And the next could be a big one.

Daily Chart Signals Point to Overbought Conditions

Looking at the daily time frame, we have higher highs in price but lower highs in momentum, with overbought conditions showing up in both 14- and 21-period relative strength indicators.

This creates what I call “hidden bearish divergence” — the kind of setup that suggests the market is running out of steam.

What makes this particularly noteworthy is that we’re seeing similar patterns across major indices, with prices trying to make higher highs while relative strength momentum is disagreeing.

This isn’t isolated to one sector or index — it’s broad-based.

Timing the Expected Correction Window

Now, divergence doesn’t mean we’re automatically at the top, but it does suggest we should expect a pullback.

I’m giving myself a window from now until probably the end of September, with the end of September to early October being when the market could incorporate some type of correction.

We’re talking about a potential 3% to 5% pullback, with 10% being a bit nasty but certainly possible. To put this in perspective, the NASDAQ is up almost 38.5% off the lows, so a small pullback of 3% to 5% is really nothing in the grand scheme of things.

The weekly time frame adds another layer to this analysis. The 14-period RSI is overbought while the 21 is close but not quite there yet. This suggests we’re approaching similar overbought levels we’ve seen at previous tops.

Given these conditions, I’m not buying these tops — instead, I’m positioning for income and hedges at much lower levels.

This market environment calls for patience and strategic positioning rather than chasing momentum.

I’ll see you in the markets.

Chris Pulver
Chris Pulver Trading

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