Figure 1: Negative Divergence between Price and MFI

Figure 1 shows the chart of Jurong Technologies Industrial Corpn Ltd (JurTech) which has depreciated by nearly 60% in value. As the price of JurTech made higher highs from May’05 to Sept’05, MFI recorded a lower high reading. While the uninformed investors were celebrating the new high, well informed investors became wary of the negative divergence happening on the weekly chart. No prize for guessing who will be able to better protect their investment. Following the divergence, Seagate made an acquisition of Maxtor who was JurTech’s major client at that time and as the market didn’t take the news too well, the uptrend reversed and the downtrend began.