Saturday, November 8, 2014

Market Into Flat Spin?

The Market Trend Model (http://bitly.com/M_Trend_Model) continues to show a positive bias with the S&P 500 closing the week at an all time high while the Nasdaq has lagged behind somewhat the last four days.


The market internals have weakened significantly in recent days, particularly the Nasdaq advance-decline volume (http://scharts.co/19gNyzU) and the NYSE advance-decline volume (http://scharts.co/19gPAQt).  The advance-decline volume shows a market running on fumes and bodes poorly for any future sustained advance.  Also, many liquid growth stocks were pummeled on Wednesday when seemingly positive election results became a "sell the news" scenario.

The recent explosive 3-week advance in stocks moved in lock step with the 10-year treasury note yield.  On Friday the 10-year reversed sharply from its 10-week moving average (http://scharts.co/1vdl5Wp).  It should be noted the market declined sharply in September when the 10-year began its move lower. 

Remember in early 2014, "sell in May and go away" did not play out as the market rallied from April to July.  Perhaps traditional seasonality has been flipped on its head this year and the positive seasonality many look for at this time of year may not play out as expected.

At this moment in time I believe caution is warranted.  But as always, trade what you see, not what I think.