Inauguration day for the US president has come and gone, causing the market to celebrate by snapping a five-day losing streak and up 95 points on the DOW by last Friday's close.
This has some market strategists convinced that investors' "animal spirit has returned and that from here on it's going to be up, up and away for the market.
But check this DOW chart [INDU] and note that this animal spirit seems to have a tough time restarting this rally and here is why. Note the wide gap between the red Moving-Average line above the green MA line. This indicates that the internals of the market are still extremely overbought and top-heavy, which is keeping a lid on the upside.
This is also the reason why since early December the best the market could do was to move sideways. So the question is, does this mean the market is forming a ceiling or a floor?
Note that the RSI strength indicator has deflated somewhat and is back on the neutral line and that is a good thing for the bulls. It gives the market some breathing room.
But that the MACD momentum bars appear to be declining deeper into bearish territory below the demarcation line is something for the bulls in this game to be concerned about.
Note that the animal spirit [XIV] in this market is still quite bullish with the red MA line above the green MA line. So, maybe the bulls will be snorting again before too long.
But watch the MACD momentum bars of the XIV. If they slip below the demarcation line the bulls will be in trouble.
As usual, the small-caps [SML] and mid-caps [MID] are moving in lockstep and that puts the market in a precarious position for the bulls. Even though both indexes are consolidating and remain bullish for as long as the respective red MA lines stay above the green lines. But at the same time, if the MACD momentum bars remain below the demarcation line, the market remains poised for a down-draft.
Even though the large-caps [SPX] have been in a consolidation mode since the middle of December, the MA lines configuration [large gap between the red line above the green] shows that this index remains extremely overbought and needs to deflate somewhat before the market can rally again.
While the RSI strength indicator remains bullish above the neutral line, with the MACD momentum bars still in bearish territory below the demarcation line, there simply is no momentum in this market, one way or the other.
The transportation index [TRAN] appears to be consolidating while the MA lines configuration remains bullish with the red MA line above the green. This suggests that at the core the overall economy along with the market remain bullish as well.
Usually, NASDAQ [NDX] and technology [XLK] move in tandem one way or the other, but not this time. Note that the tech index is falling out of step with NASDAQ as the red MA line appears to be crossing below the green line, and that's bearish.
What the implication will be for either index remains to be seen.
The Discretionary index [XLY] remains quite bullish with the red MA line above the green, and that's bullish for the market as a whole.
But for as long as the MACD momentum bars remain stuck on the demarcation line, the bulls just keep stumbling along.
The energy index [XLE] appears to be losing it even though the MA lines configuration is still bullish with the red line above the green.
But with the MACD momentum bars deep in bearish territory below the demarcation line, there simply is no upside momentum to help energy to rally.
While the financials [XLF] have consolidated since early December, upside momentum has totally vanished as the momentum bars keep sliding deeper into bearish territory.
This why despite a bullish MA lines configuration [red line above the green] the financials remain vulnerable to further downside risk.
The yellow metal [GOLD] had a pretty good rally since the end of December. But unless the red MA line manages to rise above the green, this rally will stall.
With its MACD momentum bars below the demarcation line in bearish territory, [OIL] appears to have lost all upside momentum.
But for as long as the red MA line stays above the green line, oil will remain bullish at the core.
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