As we wrote a few days ago, the negative price divergence between the Nasdaq and the S&P500 is beginning to make itself felt. The S&P500 has formed a “sub-peak” and has closed under its 21 day moving average on higher trading volume (Distribution) twice this week.
The summer storm from our previous post has moved a bit closer.
Our Current Market Outlook has changed to “Uptrend Under Pressure” with a “yellow” light. One of our Core Four indicators remains green, two are now yellow, while one is still RED (see Core Four above). This combination in the Core 4 equates to a fully yellow (caution) condition. It may not stay yellow for long, but we will let the market’s action dictate the next change.
In spite of overheated sentiment and being extended in price, the stock market remains in a longer-term uptrend. The shift in our C.M.O. to yellow was caused by a mild deterioration in certain internals (the math of the market) that are reflecting short-term negative changes in the market’s tone. This shift suggests that a test of the 50 day moving averages by the main indexes is now more likely in the weeks ahead.
On the S&P500 chart you can see a possible “down, up, down” pattern forming that is heading towards the 50 day, or to a level just below it. That sort of move could create a new point for a revised uptrend line with a lesser acute % degree angle, which may prove to be a springboard for a future advance to new highs.
While we don’t make predictions, we do have expectations that are based on market technical history. The next few days could feature a bullish bounce if the end of quarter window dressing, first day of the month inflows, and pre-holiday run-up seasonality work as they often do. If that doesn’t happen, then expect a meaningful price decline with a test of the fast rising 50 day MA’s as a next target. Note: the necessary technical conditions for a serious correction or another leg down in a bear market are NOT currently present.
What might an investor do now? Reduce or eliminate positions that are showing a loss and have not participated in the recovery thus far. Raise stops and harvest profits in other positions. Wait on new buys. Pray for wisdom and keep considering stormy days as buying opportunities.
Have a Triumphant day! ®
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.
©2020 Triumphant Portfolio Management, LLC.