Waning momentum indicator suggests caution

One of our favorite momentum indicators is the NYSE Summation Index (NYSI), a cumulative indicator based on the McClellan Oscillator, which depicts the momentum of advances versus declines. This indicator crossed below its 20-day exponential moving average on November 1, which in the past has preceded declines in equities. See the chart below:

In fact, momentum has been waning as the market seeks to revisit its April highs. The NYMO itself crossed below its 20-day EMA in mid-October, as market breadth continued to deteriorate.

A firming dollar and strength in staples versus discretionaries, plus continued weakness in financials, continue to weigh on the market.  Small caps have also lagged Large caps as the "risk-on" trade takes a break.

Much rides on events in the news this week, with elections, the Fed and Friday's employment report. If anything, recent lackluster equity indicators suggest caution until these events pass us by.

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