Buying Exhaustion After Climatic Rise with Headwinds from Seasonal Factors

On May 1, 2017 by Michael Khoon

I posted the rhetorical question about whether the rally has legs on 26 April before the market opened. This was after a huge market surge since 17 April when I was cautiously optimistic that the market would see a bounce and that the market wasn’t breaking down.

As it turned out, the all-time high, overhead resistance at the various indices (e.g. S&P 500, mid-caps and small-caps) eventually put a stop to the forward progress since 17 April. The following S&P 500 price chart taken from the website best describes the market trends in the past three weeks,

S&P 500 (Oct 2016 - Apr 2017)

As one can see, the CMF (Chaikin Money Flow) indicator has since crossed below the zero line on April 26, indicating that price is running out of steam in the near term for consolidation. We should be aware that, from May through October, seasonal factors tend to work against the market rally, but we have no way of knowing how much the “Sell in May and go away” cliché will influence price movement.

Nevertheless, the mid and long term picture of the market do favour the bulls albeit the short-term market indicators suggest caution against chasing high P/E stocks. The time to search for value is now.

Does the Recent Rally Have Legs?

On April 26, 2017 by Michael Khoon

Is the US Market Suffering From a Breakdown?

On April 17, 2017 by Michael Khoon

On Thursday, the Dow Jones Industrial Average fell 139 points to 20,453, the S&P 500 closed at 2,329, down 16 points, the Nasdaq fell 31 to 5,805, and the Russell 2000 closed at 1,345, off 14 points. The NYSE’s primary exchange traded 765 million shares with total volume of 3.1 billion shares. The Nasdaq crossed 1.57 billion shares. On the Big Board, declines outpaced advances by 2.45-to-1, and on the Nasdaq, declines led by 2.25-to-1. Blocks on the NYSE increased slightly to 6,417 compared to 5,999 on Thursday.

Despite the headlines about geopolitical risks, neither volume nor breadth confirms a breakdown, despite the two major indices closing below their respective 50-day moving averages. Here’re two charts taken from the website which depict clearly that whenever $NYHL and/or $NAHL cross below the zero line, it would spell trouble for the markets,
$NAHL (17 Apr 2007 - 16 Apr 2017)
$NYHL (17 Apr 2007 - 16 Apr 2017)

At this point, the market isn’t breaking down yet. However, it is still time to be cautious in going long. Nevertheless, the market is certainly getting very much oversold. Thus, do expect a bounce in the near term.