I wasn’t going to write anything today… until I started to review my charts. They just look so toppy to me. So many charts and indexes are showing the same pattern: A pullback followed by a push to new highs unconfirmed by indicators like MACD, RSI, MoneyFlow, Stochastics, etc.
This chart of the Russell 2000 Index shows the pattern pretty clearly. You can see a clear uptrend and a pattern of higher highs but RSI and MACD are diverging by making lower highs suggesting the rally is losing momentum. Pull up a chart of the S&P, Nasdaq or The Dow and you’ll see some sort of variation on this same theme.
To clarify, I don’t necessarily expect stocks to top out right here, right now. I do think that we’re entering a topping process right now on this daily time frame. What I mean by this is that stocks currently appear to me unlikely to go much higher at all without first correcting. This may coincide with a stock market top on a longer-term scale (weekly, monthly), as well, but that’s left to be seen.
Yesterday, Jeff Saut wrote, “today is session 49 in the current ‘buying stampede,’ with the longest stampede chronicled in my notes of some 50 years ending at 53 sessions. Therefore, pressing the ‘long side’ from here has negative odds.” I’m looking at the very same thing just from a different (technical) perspective. “Negative odds” is a good way to put it.
I read an interview recently with a successful hedge fund manager who said something along these lines: ‘you want to buy stocks when the probability of making money is good.’ Right now the odds, over the next few weeks at least, are not in the buyers’ favor.