Caution is still warranted…. SPY IWM NDX
With a potential test of the 50ma debatably possible before the holidays, we think it’s more likely we will find buyers on any dip today.
SPY, NDX, IWM on watch.
Over the past couple of weeks, diverging breadth and the changes in the heat map above, gave reason to be cautious. SPY and NDX traced out all-time highs, while IWM faded. Lately, price action in the Nasdaq and SPX has moved sideways, producing a series of candles with lower wicks along and above 256.50. The wicks in the daily SPY chart highlight recent buyers at a time when many have turned seriously bearish.
TICK cumulative (lower panel) manages to climb to ever higher levels. This tells us we are either seeing rotation or distribution. We still think we are seeing rotation and may have proof soon. IYT and XLF are oversold and ripe for a bounce.
“Valuations are too high”, are what I hear most often.
While valuations are high, so are sales and profits. In addition, we need to remember markets top on euphoria, certainly not what we are seeing this morning.
Futures are lower, again, to start the day.
Data from Factset – as of November 10, 2017.
- Earnings Scorecard: For Q3 2017 (with 91% of the companies in the S&P 500 reporting actual results for the quarter), 74% of S&P 500 companies have reported positive EPS surprises and 66% have reported positive sales surprises.
- Earnings Growth: For Q3 2017, the blended earnings growth rate for the S&P 500 is 6.1%. Seven sectors are reporting or have reported earnings growth for the quarter, led by the Energy sector.
We will most likely see dip buyers on any weakness. One look at those wicks at the lows in many of the daily candles illustrates my point. Buyers show up on weakness.
If we fail, then look for price action to head for the 50ma (253.53). In that scenario, we can expect a drawdown of 2.24%. With 3% or less, it could be the first year in ages, that the market failed to produce a 5% pullback. That’s something to consider.
Caution is warranted…..
For the record, a 5% pullback would see the SPY trading at 246.38. Steady as she goes.
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