After a strong consolidation period between early September and early November the market suddenly woke up and surged 1270 DOW points by the close last Friday.
The Wall Street crowed hollered "hallelujah" we're off to the races again. But here a word of caution. The DOW and its Moving-Average lines configuration were heading for the stratosphere with this wide overbought gap between the red line above the green line. This is always a warning signal that the market is getting overbought, topheavy and ready for a sharp correction.
The RSI strength indicator is floating way-up there in empty space above its demarcation line. It's a long way down from here to the level of reality. Meanwhile, the MACD momentum bars which fuelled this rally have lost their mojo and keep shrinking fast. This means that the market's gastanks have only fumes left to feed this rally with. So why this surge to higher highs?
Besides Trump's election victory, it may have something to do with this massive rally in the energy sector. OPEC's proposed production cuts has energy bulls see $60.- oil sometime down the road.
As oil production and consumption slide into balance, it could have wide-ranging bullish implications across the financial markets and the economy.
Check this bechmark oil index [WTIC] and note that at first glance everything about this chart looks extremely bullish. This index keeps soaring, its MACD momentum bars are solid in their bullish territories and ditto for the RSI strength indicator.
But what gives with the Moving-Average lines configuration which turned sharply bearish with the red line below the green line? This suggests that the market is sensing the approach of a slowing price trend and bearish trading pattern for oil in the weeks and probably even months ahead.
The investors' confidence index [XIV] appears to be pretty solid with the red MA line above the green. But this confidence in the market can be very fickle when the MACD momentum bars are at dead neutral on top of the demarcation line, as is the case now.
The large caps in this game [SPX] appear to be getting a bit tired, even though the MA lines configuration [red line above the green] is still solidly bullish. But that the MACD momentum bars are at dead neutral on top of the demarcation line, is a caution signal.
Although the NASDAQ [NDX] managed to climb off the bottom recently, it could not hang on so every component of this index is now bearish.
This is mainly because the main component of the NDX is the tech sector [XLK] which got hit the hardest. That the RSI strength indicator and MACD momentum bars have slipped into their respective bearish territories won't do the tech-bulls any good either.
Although the Mid Caps [MID] and Small Caps [RUT] are out of their respective and extremely overbought danger zones, the wide gaps between their respective red lines above the green lines shows that both indexes are top-heavy and poised for sharp selloffs.
Note that the MACD momentum bars have turned bearish on the respective demarcation lines and that will add to the downside pull.
All components of the commodity market [BCOM] are bullish, exept for the MA lines configuration which is bearish. For as long as the red line stays below the green line, the commodity market remains poised for a sharp selloff.
Gold is a basket case with all components bearish.
Although the bulls in this market appear to be taking a breather, the MA lines configuration for this index remains quite positive with the red line solid above the green.
But with the RSI strength indicator pulling back and ditto for the MACD momentum bars, the upside momentum for the bulls is fading fast. If this trend continues, it will highten the probabillity for selling squalls in the weeks ahead.
The bears in this game tried to rally in early November, but then the MACD momentum bars slipped below the demarcation line and that nixed this rally attempt.
Now the MA lines configuration is turning bearish for the bears as the red line is forming quite a gap below the green line. Also, the RSI strength indicator appears to be stuck in its bearish territory.
So, this looks like a market where for now neither bulls nor bears have an advantage.
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