I originally posted this yesterday AM, but forgot that the market was closed. So, here is the analysis going into the new week.
Let's begin with my current thesis of the market. While there are bullish economic arguments to be made (housing is rebounding, manufacturing is recovering), the negative effects
of the sequester and payroll tax hikes are too large to overcome and
will slow growth in the first half of the year. We're already seeing
the effects of the payroll tax hike hit the sales of retailers like Wal-Mart. There is also little good news coming from the international arena, save for China.
The real cause for the rally is a new round of liquidity
from massive 2012 dividend payments is hitting the equities market -- a
source of money that will dry up by the end of the third quarter if not
sooner. Finally, market breadth indicates we're already very
overbought at these levels.
daily SPY chart (bottom chart) shows that the rally continues
unabated. All the EMAs are still rising and the CMF indicates a
positive volume inflow. However, the MACD has given a sell signal,
indicating potential weakness. The 60 minute chart (top chart) adds to
the concerns about the strength of the rally. After prices broke
through the 151.25/151.5 level they rallied to the 152.5 level twice
only to fall back. The move from 151.25 5o 152.5 is less than 1%, so
the lack of continued upward momentum is a bit concerning.
DIA's 60 minute chart (top chart) shows prices moving sideways with
support coming from both 138 and 139 and resistance coming from 140.
The daily chart (lower chart) shows prices broke their uptrend at the
beginning of February and have been trading sideways ever since. Also
note the MACD has given a sell signal.
IWMs -- which I use as a proxy for risk based capital investment -- are
still going strong. The 60 minute chart (top chart) shows that since
the February 7 the market has been in a higher high, higher low pattern,
a fact that is confirmed by the daily chart (lower chart), where we see
a strong, upward movement in prices and rising EMA picture.
QQQs have an apple problem. Because of Apple's recent fall, the 60
minute QQQ chart (top chart) and daily chart (bottom chart) show this
index has had little to no effect on the overall market rally we've been
With the exception of the IWMs, all the other
major averages rallies appear to be stalling. The DIAs have been in a
tight range on their 60 minute chart while the SPYs 60 minute chart may
have printed a double top over the last week. The QQQs have yet to make
a meaningful rally. However, the IWMs continue to move higher.
Overall, the sum picture of all the averages is one of a weakening