Conflicting Signals

Although the equity markets have reached new recovery highs, our three major concerns of this rally are the following:

1. Advance/Decline line has fallen, diverging from the new highs (see NYAD and NAAD charts).
2. The NYA McClellan Oscillator, one of our favorite indicators, has fallen below its EMA 10, behavior that in the past has marked short-term market tops).
3. VIX remains complacent, well below its EMA 34. We have found that large "gaps" in VIX price vs. its EMA 34 have preceded market turns.

We cannot ignore the trend, and will not turn aggressively bearish unless price and volume action warrant. Picking tops and bottoms is a challenging exercise!

The recent strength in the dollar (our favorite bullish market right now), could wear on equities (as the two markets have been moving inversely to each other. This also bodes negatively for gold and commodities.

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