Saturday, September 12, 2015

Analysis Paralysis

The Market Trend Model (data sheet) shows more of a neutral bias this week as the market indexes continue to work off the deeply oversold levels from the 2015 "flash crash" just two weeks ago. Volatility remains elevated as the long-awaited September Federal Reserve meeting occurs next week.

It is truly amazing how the market has become so fixated on the Federal Reserve interest rate policy.  It seems to me that, taken in historical context, any interest rate raise will be statistically insignificant.  Can an expected 1/8% to 1/2% interest rate raise really be the force behind the recent stock market weakness?  I suspect something more substantial (like an expected slow down in economic growth) is more likely the force pushing stock prices lower.

The weekly and monthly time frames continue to show a market reacting to recent selling pressure. The Nasdaq (weekly chart) and the Nasdaq-100 (weekly chart) now show falling 10-week moving averages and flattening 40-week moving averages. The S&P 500 (weekly chart) now shows a falling 10-week moving average that has crossed below its falling 40-week moving average. And the Russell 2000 (weekly chart) remains deep within its current downtrend.

At the moment the stock market appears to be in a state of analysis paralysis as market participants anticipate a Federal Reserve policy change while weighing the prospects of slowing economic growth against a backdrop of historic central bank accommodation around the world.  As always I remain mindful that anything can happen from one day to the next.