Hammering toward the April highs

The age of the uptrend continues to assert itself as equities close well off their highs on Monday, October 25th. Breadth and sentiment indicators continue to point to a decline in momentum while the equity indices struggle to meet their April highs.

The dollar fights to print a bottoming formation (see the bullish reversal hammers that have formed on 10/25 and during the prior week). The consensus accepts the likely outcome of a dollar bounce/rally being accompanied by a decline in equities. Treasuries appear to have settled into a consolidating frame of mind rather than a correction, while corporate bonds have recently caught a bid, both favorable indicators for equities.

On 10/25, the Nasdaq, S&P500 and the Dow all printed inverted hammers (nearly shooting stars), as rallies early-on faded throughout the day. Such days will be necessary to tame the bullishness and relieve the markets of their euphoria a bit prior to making further advances. It is not clear, however, that a correction looms in the near-term, while the trend and our indicators, although overbought, continue to support a bullish stance. This is not the time to enter new long positions, but a time to revisit stops, take selective profits, perhaps sell some calls, and look to the markets for further direction.

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