The markets are sending mixed messages, with the indices dropping below key moving averages.
For the second time since May 17, the NDX, SPY and IWM sixty (60) minute charts saw price close below the important 9/20ema. Additionally, RSI idipped below 50, as stochastic and MACD trend in the same direction. A descending pattern is emerging as a result.
TICK cumulative is still rising, so institutions are still buying more stocks on the uptick, than they are selling on the downtick. This latter observation could signal nothing more than sector rotation.
If we analyze NYMO in the upper panel we see a peak, with the moving average (daily values) beginning an up cycle. The “summation” index or NYSI (lower panel), paints a picture of a trending market as it rises. Over the next few days, we need to monitor the latter. If NYMO dips further, NYSI will follow; this action would trigger a deeper descent in the markets short term.
We will begin to shift towards risk off, as we assume the current “buying” cycle has reached an apex or may be nearing one.
Below is the watch list , along with results for the week. The stocks with largest gains are those which we will trim the most, if more trepidation sets in today.
Over the next few days, we will continue the process of reducing the number of long positions, as well as their size. For example, instead of holding a full position, we might take profits in half. For stocks that have not moved, we might take the whole position off.
Finally, we have to consider gold. As the precious metal rises to meet our target (1300), anxious traders could be signaling a shift to safety. That said, former FBI Director Comey is testifying and UK has an election on Thursday.
The take away short term is simple. Once the dust settles, we will have a clearer picture of market direction into summer. Stay tuned.