Last week was volatile and saw a sharp rally putting the major equity indices back in a much stronger price location. Can this be sustained?<\/p>\n
Positives:<\/strong><\/p>\n 1) Stronger price location. Equity indices are above levels previously considered chart Resistance.<\/p>\n 2) Although the market rallied there was no obvious increase in bullish sentiment recorded by the majority of our market sentiment indicators.. For example, three out of four consensus polls we follow showed more Bears last week which, from a contrarian point of view (which is how these polls should be interpreted) is not bearish. Also Mutual Fund flows did not show any exceptional inflows last week indicating the average U.S. retail trader did not “jump on the rally” and again this is a contrarian indicator. One exception was the VIX (fear gauge) which fell sharply, closing the week at 13.83, very close to August’s extreme low which is a concern for the Bull case especially if it falls below that August low.<\/p>\n 3) Our Longer Term Market Timing System based on market breadth is positive for all Major Market Charts.<\/p>\n Negatives:<\/strong><\/p>\n 1) There were large gaps up on the major index charts last week and historically these tend to be “filled”. In other words, the majority of the time following a large gap, the markets will fall back to where the gap started.<\/p>\n 2) The market is overbought. A number of stock indices are registering very high readings on the technical oscillators based on price. e.g. FTSE 100 index had an RSI reading of 73 on Friday, its highest since March 2010. Also our day-to-day breadth measurements are very high; e.g. the percentage of Stocks on the London, New York and Nasdaq Stock Exchanges that are currently trading above their 50day moving average are now above 80% and again historically this is often close to the point where the markets stall at least.<\/p>\n 3) We see the U.S Dollar as currently strong and for years now dollar strength has coincided with equity weakness, ie they have tended to move inversely. Also US T-Bonds, although they fell sharply in January, have reached what we consider to be important chart support and may rally. Once again they have tended to move inversely to equities over the last few years. We expect that within a few days either the dollar and bonds will fall back into a weaker position indicating a green light for equities or the reverse will happen and the dollar and bonds will advance with equities falling back.<\/p>\n Summary\u00a0<\/strong><\/p>\n There is nothing within our analysis which shows any definite indications of a turn lower in the market but we see the possibility that the market might take a breather here. Only if price confirms weakness by breaking support would we consider lowering our current beta. Otherwise, should the market “correct” a little we would view it as an opportunity.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Last week was volatile and saw a sharp rally putting the major equity indices back in a much stronger price location. Can this be sustained? Positives: 1) Stronger price location. Equity indices are above levels previously considered chart Resistance. 2) Although the market rallied there was no obvious increase in bullish sentiment recorded by the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/posts\/72"}],"collection":[{"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/comments?post=72"}],"version-history":[{"count":5,"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/posts\/72\/revisions"}],"predecessor-version":[{"id":74,"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/posts\/72\/revisions\/74"}],"wp:attachment":[{"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/media?parent=72"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/categories?post=72"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialadviceinlondon.com\/wp-json\/wp\/v2\/tags?post=72"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}