Although most of our equity indicators remain positive, equities once again are pushing up against resistance, and negative divergence has begun to assert itself, as slowing momentum (weakening RSI on several indices) has emerged. Sentiment, as measured by DSI and Investor's Intelligence, has once again scored peak readings (DSI is at a level last seen at the late April peak in equities).
The probability of a modest correction in equities continues to grow. Bonds may likely experience a bounce during a fall in equities; their uptrend remains intact and their recent correction looks like a healthy decline inviting a favorable reward/risk entry point at this time. The US Dollar has corrected into support and appears poised to resume its uptrend while the Euro looks to follow through on the downside.
On the sector/intermarket front, Nasdaq price relative vs. SPX surged this week (a positive), while Financials seriously underperformed (a negative). Discretionaries continue to outperform staples as the "risk-on" trade persists, while industrial materials (i.e. copper) assert their strength.
Not much has changed since our view from last weekend. A modest unwinding of the bullish optimism we have seen since the start of September will be a welcome entry point to re-establish long positions.
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