Has the Market Topped Out?

by: Toro

I'm wondering if we have seen the near-term top. Monday's market action feels like the path of least resistance is down.

Some observations:

  • The daily market action on Monday was the opposite of what has generally been occurring over the past month. Specifically, we were up into the day and then began to sell-off after 2:00pm.
  • Many utilities, which have been one of the best performing sectors over the past year, fell sharply.
  • Breadth has been narrowing. During the last few days of the past week, breadth was negative as down stocks outnumbered up stocks, even when indexes were rising.
  • Many commercial banks remained weak. If I was able to short and trade, then I would still short many of the regional banks, if only for a few weeks.
  • Gold and silver stocks may be breaking down. Gold and silver sold off hard last week. Unlike the gold bugs, I expect gold and silver to fall when stocks fall, and vice-versa since the correlation of divergent asset classes around the globe are as high as they have ever been. Gold may be a leading signal for stocks, at least in the short-term.
  • There has been a divergence between the Shanghai index and the China 25 iShares [ETF],(NYSEARCA:FXI). The [ETF]has been working its way downwards over the past several days even though the Shanghai index has continued to rise.
  • It appears that many energy companies may be topping out, at least in the short-term.
  • Despite all of this, some of the second and third-tier semiconductor companies I follow have actually held up pretty well.