Last week we reviewed some degrading indicators giving warnings on the US stock market in an update. The market went on to be okay. This weekend NFTRH 320 had caution signals aplenty, especially in the sentiment segment. And all along we have had the fading junk-quality bond spreads as a negative divergence.
What does today’s down day mean? Nothing really on its own, last week started out down as well. But the theme is that conditions (bond spreads, sentiment, etc.) are in place for the market to top out into a correction.
Bond spreads are still declining after continuing to negatively diverge last week’s happy stuff. As for nominal charts, let’s review the dailies of a few major indexes with a few words on what to look for with respect to this being a little blip or something more.
We noted that that the MACD on NDX has been a suspect. Today its poke through the short-term supportive EMA 10 (gold line) makes it more suspect. I am going to keep it real simple and note 4250 as a short-term tolerance point on this index.
SPX should not go lower than 2049.57, which was last Monday’s low.
Momentum leader SOX should not drop below 685 or the EMA 10.
Momentum leader BTK gapped up (may have been on the Merk acquisition of Cubist Pharmaceuticals) and the tolerance is noted here as well.
My personal tolerances are admittedly strict, but that is how I will always be with an over loved, over bought market in which I am just trying to ride momentum, even if with just a few positions. Recall my accounts are and have been predominantly cash.
There is a deflationary pull gripping the globe after all. As noted, personally, anything I hold (US or global) is potentially for sale and the above gives some general parameters to my thinking on the US market. Especially when the pressure is deflationary, cash is a position. Meanwhile, we can let the short-term technical parameters be a guide.