Wednesday, November 13, 2013

Market continues to look dicey near-term

As I've been writing since the start of this month, the near-term stock market outlook has looked weak, showing signs of wanting to pullback or correct. In that time, the S&P 500 has more or less traversed sideways, as shown in the daily chart below.

Source: Stockcharts.com

Note that a negative divergence is developing in the stochastic, with the S&P 500 flat and yet the stochastic trending down. Also, the MACD has registered a sell signal (blue circles). In the recent past, the market has retrenched under these conditions. Support resides at 1720 and 1700.

The following chart also depicts some foreboding indications.


The percentage of NYSE stocks above their 50-day MA (red line) is now at 61%, steadily trending lower since its peak of 85% attained last month. A rising S&P 500 coupled with a declining % of issues above their 50-day MA is typically a bearish harbinger with price weakness often the outcome. The VIX (green line) has submerged below 13, suggesting sentiment has become a bit frothy and complacent. A low VIX number in isolation is not necessarily bearish as the VIX can remain at repressed levels for months during a rising market environment. However, coupled with weakening internals as per the $NYA50R as an example, a low VIX index takes on new meaning.

In prior posts this month, I've written that the market could indeed correct via time as opposed to price and so far it appears to be doing so as it consolidates sideways. But I still remain cautious in the short-term, preferring to hold all stop-loss sells as cash and await a more opportune time to reallocate into active positions. My mantra: always side with prudence, risk control and discipline.

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