Wall Street slipped last week as the top-heavy overbought conditions of the RSI index has put a lid on this rally. Also, market participants are concerned over the rich valuations and the mediocre outlook for corporate earnings.
With all the major indexes trading in overbought territories, the market may decide to take some weight off its shoulders and sell for awhile.
Wall Street is still waiting for the DOW to break through the 20000 ceiling. A couple of weeks ago the DOW had its largest weekly run of gains since November 2015, but now seems to be stuck within a narrow trading range without going anywhere fast.
Yet, reports have it that some Wall Street pros see 2500 plus on the S&P before trading stops for this year. They are sure that it won't be just a "Trump-Bounce" but the real thing to higher highs.
Could be, but lets see what the charts have to say about that.
Check the DOW index [INDU] and note that the RSI strength indicator is blowing a big fat bubble on top of its trading channel. When this thing bursts, it's going to be messy down below.
Also, while this bubble is growing, the MACD momentum bars are shrinking. Bad combination for the bulls.
The NASDAQ [NDX] is overdoing it but remains firmly bullish with the red Moving-Average line above the green line. The MACD momentum bars are solid north of the demarcation line, and so is the RSI strength indicator.
All of this points to a strong tech [XLK] sector.
The commodity index [GTX] is also quite bullish with the red line crossing above the green. That the RSI strength indicator appears to be solid in its bullish territory is also bullish for the commodity bulls. [Enough "bull" for a while?
The small-caps [SML] and mid-caps [IJH] have been the main drivers in this rally, but now appear to be played out and ready to keel over.
Note that the respective RSI bubbles are deflating, and that is bullish. Also note that the Moving Average line configurations are forming huge gaps between the red lines above the greens? These are signs that extreme optimism is taking hold of the market, and that is bearish for the bulls most of the time.
The bulls [SPXL] seem to be getting tired. The MA lines configuration [red line above the green] has blown an overbought bubble, the RSI strength indicator is deflating back into moderate bullish territory and the MACD momentum bars are retreating as well. Yup, that bull is getting tired.
While the bear [SPXS] is still bearish [red MA line below the green] any selloff here would be a buying opportunity.
The yellow metal [GOLD] is still taking time out and remains totally directionless.
Oil [WTIC] had a pretty good run since early December and now appears to be consolidating. The MA lines configuration has turned bullish with the red line above the green.
The RSI strength indicator appears to be solid in its bullish territory and the MACD momentum bars seem to be getting up there as well
That's the kind of stuff that bulls are made of.
The financial sector is all played out. The MA lines configuration is extremely top-heavy with this wide gap between the red line above the green.
At the same time the RSI strength indicator and MACD momentum bars are retreating back into bearish territory again, and this is why this index is topping out.
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