Back in late December I penned a story about why I thought the market would rally and today I am back with a story on why I think the rally is just about over.
I hope I get some "push back" emails from readers, as most of my stories the past three months have been bullish. Here and there I have written about a stock I did not like, but the numbers are shifting and I find I am looking at a shrinking universe of stocks I like from the long side.
A wise technical analyst I respect once told me that it takes six or seven sectors to really get going to make a sustainable bull market. What does "get going" mean? To him, 30-40% of the stocks in these sectors had to be rising. In my day to day routine of writing about stocks and looking at charts for Jim Cramer, I find that I do not see six or seven strong sectors. I do not see a lot of stocks within the sectors going up with "gusto." Enough stocks have risen to lift the averages, but when you get away from the averages and dig in the dirt, you don't get inspired. Or rather, I am not inspired.
Let's look at some charts and indicators.
In the weekly candlestick chart of the SPDR S&P 500 ETF (SPY) there is a pattern called "8 to 10 record highs." This relatively rare pattern can be seen from December in the rising white candles. Prices make "eight record highs" from the low last year. A bearish red candle is seen in week nine, and bearish confirmation in week ten. The candle for this week is white and thus bullish, but we are not done with today and the week. Anything can happen.
Notice how the level of volume has slowed the past three months? Notice that the weekly OBV line has stalled at the September high? And that the Moving Average Convergence Divergence (MACD) oscillator has still not crossed above the zero line on this time frame.
In the second SPY chart, below, we look at daily prices and momentum. The daily OBV line rose into late February but has turned down.
The 12-day price momentum study shows slowing momentum peaks from January, which is a bearish divergence when compared to the price action.
In this second daily bar chart of SPY, below, we include the Moving Average Convergence Divergence (MACD) oscillator which has crossed to the downside, signaling a take-profits sell signal.
Bottom-line strategy: What did I just say and what does it mean for your investments?
First, if you disagree with this analysis, then send in an email with some technical indicators. Please don't rattle off some list of fundamentals, because we both need to talk apples and not apples and oranges. OK?
Second, stocks will top out differently. Some have peaked already. Some will move sideways and some will keep going up to make me look like an idiot and loser.
Focus on what is important - Your Stocks. If your stocks are acting poorly then it is time to make some decisions.