It sure appears that way. Note this bullish percent index which after the steep nosedive in January took just as steep a rocket-run to the upside over the past couple of months. It this move that is setting the market up for a steep correction.
Not only did this index shoot up too far too fast, but it also caused the RSI strength indicator to blow a fat overbought bubble above the 70 line. Not only that, but the Moving-Average lines configuration is causing the market to become dizzy with this huge bullish gap between the red line above the green line.
All of this has the market grown top-heavy and unable to support any serious rally attempt. The question is, will the market come down hard like a rock, or in a prolonged fashion like a tooth-ache. Check the MACD momentum bars which are sitting at dead-neutral along the demarcation line. This means that there is no momentum in this game either to the upside, nor to the downside.
After big swings in both directions the S&P 500 benchmark index remains sitting close to where it ended last year, so both the bulls and the bears are declaring victory.
As pointed out in previous blogs, this makes for a bifurcated market with a split personality, where the short-term daily trend goes one way and the longer weekly trend goes another. This why market strategists with a bearish bend suggest that market participants should fold 'em and get out of the game. Sell the rallies, and don't buy the dips.
Bull - say the bulls to that. As they see it, this market is poised for take-off because there are plenty of attractive stock valuations out there. Also, that the major indexes have remained near their sessions' highs despite the recent European terrorists' attacks, is a sign that this market wants to keep reaching for higher highs.
But lets check other major indexes and see how they are sizing up the market.
Note that the large-cap daily S&P 500 index [RSP] is suffering from an overly enthusiastic exuberance. This index has shot up too far too fast and is now suffering dizzy-spells. The RSI strength indicator is solid in its bullish territory and that is favorable for the market. But that the MA lines configuration remains so extremely bullish with this large gap between the red line above the green is a sign that this market is getting to be top-heavy, and caution is called for.
With all this bullishness, where is the momentum? With the MACD momentum bars sitting at dead neutral along the demarcation line, there is no way of knowing if momentum will show up on the upside or downside.
When you check the [RSP] weekly chart you'll note that the MACD momentum bars are still very strong above the demarcation line and so is the RSI strength indicator. But when this index surged to the upside it hit a ceiling and consequently is suffering from dizzy spells. This makes the market vulnerable to losing its balance and keel over.
Also note that the MA lines configuration of the weekly RSP is widening its gap with the red line below the green line. For as long as that configuration remains intact, there is no way this market can continue its rally mode. Instead, market participants can expect frequent triple digit swings within a downward trend.
One of the main components of any sustainable rally are the small-cap sectors, one of which is the [SML] index. This index has soared and now is consolidating while the RSI strength indicator is solid in its bullish territory.
But the extremely bullish MA lines configuration with this large gap between the red line above the green is way overdoing it, and that is a sign that a top-heavy market is getting ready for a correction. Also, that the MACD momentum bars are inching below the demarcation line is a sign that downside momentum is building.
The [50R] percent index looks bullish, but in fact is exceedingly bearish. This index has shot up too far too fast, has become top-heavy and is ready for a nosedive.
The MA lines configuration shows an overblown bullish gap between the red line above the green, the RSI strength indicator is clinging to the overbought ceiling of its trading channel and the MACD momentum bars are beginning to slip below the demarcation line into bearish territory.
So here is an example of bullish extremes that will have a bearish impact on the market.
The main driver behind this market's advance over the past five years has been the discretionary sector [XLY.] During that time the MA lines configuration on this weekly chart had been steadily bullish with the red line above the green. Now, for the first time in five years the red MA line is slipping below the green in a bearish configuration.
While this market forecasting junk-bond canary [JNK] rallied sharply since early February, its MA lines configuration turned extremely bullish with a wide gap between the red line above the green. This means that this little bird is forecasting a top-heavy overbought market ahead, which could be the precursor of a sharp correction.
This will be especially the case if the MACD momentum bars keep slipping below the demarcation line in spite of a positive RSI strength indicator.
Just like other major indexes, the NASDAQ [NAS] shows an overblown bullish MA lines configuration, with a wide gap between the red line above the green. This means that NASDAQ is floating over a deep pit without support to keep it up there. This is especially the case now that the MACD momentum bars
This is yet another sign of a pending correction.
The bulls in this game [SPXL] are too irrationally optimistic. This index has hit the ceiling while the MA lines configuration is displaying too wide a bullish gap between the red line above the green.
Meanwhile the MACD momentum bars are at dead neutral along the demarcation line, all of which means that the bull is exhausted while standing on a slippery slope.
The bear's [SPXS] situation in this game remains extremely bearish. This index appears to be unable to lift off the bottom while the MA lines configuration displays a huge negative gap between the red line below the green. Meanwhile the RSI strength indicator is sitting at the bottom of its trading channel and the MACD momentum bars are at dead neutral along the demarcation line.
All of this implies that the market is floating in empty space without momentum to either side and that favors the downside because the market is vulnerable to decline under its own weight.
The commodity index [GTX] appears to be consolidating. While the RSI strength indicator managed to stay inside its bullish territory, the MACD momentum bars remain neutral along the demarcation line. That isn't good enough even though the MA lines configuration is sharply bullish with the red line above the green. Unless upside momentum starts kicking into gear someday soon, commodities will head south again.
The yellow metal [GOLD] appears to have had its days in the sun while rallying strongly for most of this year. But recently the MA lines configurations became overly bullish with wide gaps between the red lines above the green lines. This means that gold has become top-heavy and is ready for a correction.
This is especially the case now that both the RSI strength indicator and MACD momentum bars are back in their respective bearish territories.
The strong rally in oil [WTIC] since early March caused the MA lines configuration of this index to expand into an extremely bullish configuration with a large gap between the red line above the green. This was too much of a good thing and so the MACD momentum bars settled neutral along the demarcation line while this index got itself a bit of a haircut.
All in all, this is the kind of a dizzy market that causes some market participants to stay out of the game and just watch the market unfold for a while.
So just in case the market unfolds your way, here are some favored ETFs to keep on tap.
Russell 2000, Small Caps, Mid-Caps, Discretionary, Energy, Technology;
Leveraged Bull ETFs:
Financials 3x (NYSEARCA:FAS), S&P500, 2x (NYSEARCA:SSO), NASDAQ 2x (NYSEARCA:QLD), Financials 2x (NYSEARCA:UYG), Small-Caps 3x (NYSEARCA:TNA), DOW 2x (NYSEARCA:DDM), Materials2x (NYSEARCA:UYM), Materials 3x (NYSEARCA:MATL), Emerging Markets 2x (NYSEARCA:LLEM), Healthcare 3x (NYSEARCA:CURE), Mid-Caps 3x (NYSEARCA:MIDU);
Non-Leveraged Long ETFs:
Russell1000 (NYSEARCA:IWF), Russell 2000 (NYSEARCA:IWO), Mid-Caps (NYSEARCA:IWP), Insiders (NYSEARCA:KNOW), Developed Markets (NASDAQ:PIZ), DOW-DOGS (NYSEARCA:DOD), Alerian (NYSEARCA:AMU), Value Fund (NYSEARCA:JKF), EAFE (BATS:EFG), Clean-Energy (NASDAQ:ICLN), Cleantech (NYSEARCA:PZD), NASDAQ (NASDAQ:DWAQ), Small-Caps (NASDAQ:DWAS), Energy Exploration (NYSEARCA:PXE), Large-Caps (PWP);
Leveraged Bear ETFs:
S&P500 2x (NYSEARCA:SDS), Financials 3x (NYSEARCA:FAZ), NASDAQ 2x (NYSEARCA:QID), Small Caps 3x (NYSEARCA:TZA), DOW 2x (NYSEARCA:DXD), Mid-Caps 3x (NYSEARCA:MIDZ), Emerging Markets 3x (NYSEARCA:EDZ), Energy 3x (NYSEARCA:ERY), Semis 3x (NYSEARCA:SOXS), Emerging Markets 2x (NYSEARCA:EMSA), Materials 2x (NYSEARCA:SMN), Gold 2x (NYSEARCA:GLL), Mid-Caps 3x (NYSEARCA:SMDD),
Non-Leveraged Short ETFs:
Total Markets (NYSEARCA:TOTS), Base Metals (NYSEARCA:BOS), Commodity (NYSEARCA:DDP), Oil (NYSEARCA:SZO), DOW (NYSEARCA:DOG), Financials (NYSEARCA:SEF), NASDAQ (NYSEARCA:MYY), Emerging Markets (NYSEARCA:EUM), Russell2000 (NYSEARCA:RWM), Small-Caps (NYSEARCA:SBB), NASDAQ 100 (NASDAQ:SQQQ), Equity Bears (NYSEARCA:HDGE);
Check my Home-Page for more info; and