Potentially Dangerous Technical Divergence

There is a bearish divergence between the stock price of the 3M Company (MMM) and the S&P 500 Index, and while this may not seem important there is an interesting technical connection that suggests otherwise. The graph between the S&P and MMM charts is the correlation coefficient, an indicator that measures the price action between two stocks or in this case a stock and an index. It’s positive when they move in the same direction, and negative when they move in opposite directions. MMM and the index have been very closely correlated for years, that is until April of this year when MMM started to roll over and the S&P continued to rise above trend line support. It remains to be seen if the stock is acting as a leading bearish indication or it will correct and move back into agreement with the index, but it is certainly something to monitor.