As for sentiment readings, bullishness continues to sit at heightened extremes (and lows in the case of the US Dollar). VIX has started showing signs of increased complacency, as the gap between price and its 50-day exponential moving average grows larger. This is a cautionary signal and underscores the extended nature of the equity markets. See chart below:
As for sectors, financials struggle with the broader market, as technology firms and discretionaries lead. Strength in bonds as rates continue to shave basis points appears to be providing support to equities and pressure on the dollar.
As for style, small caps bullishly continue to lead large caps, and growth leads value. Our nightly test of the small to mid-cap stock universe (about 3,000 equities) continues to reveal breakouts and interesting long opportunities, another sign of internal market strength.
The US Dollar appears to have hit a point where Elliott Wave theoreticians are clamoring for a potential trend change. Dollar Bulls rank in the single digit percentages. With the inverse relationship we have seen in the dollar vs. equities, a reversal in the dollar's fortunes could spell trouble for equities. We continue to remain on watch for a trend reversal in equities; it is sure to come and will likely catch us off-guard. Any correction or consolidation we feel would be a buying opportunity assuming our trend forecasting indicators agree.
With US Elections coming up, as well as a G20 meeting in November (which will raise currency debates to a heightened level), we may see current events influence this market more so than economic statistics (a disappointing employment report on 10/8 did nothing to squelch the uptrend in equities). Earnings also loom as reports start trickling in this week (following an upbeat report by Alcoa). The next few weeks can be very interesting!
Click here for the updated Market Tour on StockCharts.com.
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