However, we are noticing some obvious divergences on the Nasdaq. Upside momentum is slowing considerably as seen by a waning RSI (which crossed below its 14-day exponential moving average). At the same time, the percentage of Nasdaq stocks trading above their 50-day moving average is close to falling below its 10-day exponential moving average, another indicator we watch to assess price momentum. See the chart below:
Nasdaq relative strength vs. SPX appears to be correcting from overbought:
We like to see technology lead the markets (we also like to see Financials lead but that has certainly been a struggle). The loss of Nasdaq momentum could simply be a sign that the index got ahead of itself, and money is gravitating to areas where relative strength has lagged (notice below how energy has picked up this week:
So, the uptrend continues (yes overbought and ripe for a pullback) as money begins to shift into other sectors that have lagged (even Financials saw a modest relative strength pop this week). Rather than establishing long positions in the major indices, one is cautioned to take a more selective approach and favor those sectors that have lagged the general market and to tighten stops on those sectors that have gotten ahead of themselves.
We would view a correction in the indices (preferrably around 10%) as a buying opportunity, should our trend-forecasting indicator support that view.
Click here for the updated Market Tour on StockCharts.com.
No comments:
Post a Comment