The markets are in a long term Bull phase, and those can go on long past any reason. This one is showing signs of being over done (very low volatility and decreasing upside volume), but that isn’t enough to “call the top”. A while back (month or so?) I said that, and pointed out the signs of weakness. Here’s another one.
Does this mean it’s the top now and get out? NO. Not at all. It could be, or it could run for a couple of more years. There are specific things that happen at a confirmed top. We don’t have those yet. So far it’s only “late in the game”… But here’s another of those late in the game things.
Dow Transportation vs Russel 2000 vs SPY vs DIA 1 year daily
At the far right, the Dow Transportation Average is that red line at the very bottom. It is dropping away from the RUT Russel 2000 that’s the main ticker. RUT is itself falling away from SPY the S&P 500 stocks ETF. Then at the top, the DIA Dow “Industrial” Average is holding up best.
Money is leaving the small guys and staying with the biggest companies. If you only look at the Dow “Industrial” or S&P, you miss this broad weakening in the markets. Clearly the jump in oil prices is part of the Transports weakness, but the RUT is the broader indicator of our economy.
DMI is ‘red on top’ with a rising strength to the trend (black line rising). MACD has been in a ‘red on top get out’ condition for a month and is now below the zero line (so not just trade out, but tend is down recently too). RSI is an early indicator. It “inflected” at the start of October to a downtrend. Right now it’s well below zero (indicating an established downtrend) but with a touch of uptick at the end on the rally today. It bears watching to see if it inflects upward (one more rally to ride…) or fails to inflect showing the trend to the downside strengthening.
We still have the “SMA Stack” in normal order (fastest on top) with price bouncing off the longest (69 day) average. IFF price punches through and bounces off to the downside, we’re entering a reversal to a down side market. More likely, IMHO and as a guess, is that we bounce off the slowest average to the upside for another run upward. Just don’t buy late in any such rally as it is likely to act just like the last one. Top and drop back to the SMA stack.
In general, it looks like “The Little Guys” are not doing as well as “The Big Guys”. That is also a late market tendency. Weakness shows up first in the weaker smaller companies (with fewer lawyers and accountants to cook the books for a bonus…) So I’d allocate money accordingly. TRADE the RUT, longer term trend money in the big stocks with big institution money,that’s slow to get out, holding them up.
At least, that’s what this says to me. YMMV based on your personal needs and expectations. This also says nothing about markets outside the USA. With the EU “having issues”, the Middle East in full on disruption, and Asia toying with nuclear brinkmanship, those are likely to be having their own trends. IMHO, the “up vs down” in the USA is likely to hinge on the passage of a “Tax Deal” that really cuts tax rates and complexity. As some of that is already ‘baked into stock prices’, IF it fails to happen, that’s likely to be a rug pull moment. IF it passes, a ‘relief rally’ for a month or two is probably the reaction.
Don’t you just hate it when stock prices depend on Congress? Isn’t it always like that? ;-)
Musings from the Chiefio 
Yea, the stock prices depend on Congress. But that is acting as a governor at this point. I think (barring a nuke strike) we have another 10 months at least to run. After that, it is anyone’s guess.
I had expected the Fed to ramp up interest rates faster. But other than the rate of speed, they did exactly as I expected.
Money and optimism out on Main Street has dried up. Fore sale signs are multiplying as well as see through retails for lease. Looks like the Trump Bump has run out of gas out here in fly-over country. Meanwhile the Senatorial congress critters are playing chicken to get special dispensations for their districts.
Looks to me that the market is ready for an excuse to begin a serious correction…pg
Not here, yet, has money and optimism dried up. I see a lot more capital good activity and it is beginning to pick up in the consumption good area. There are a lot more ‘now hiring’ signs and more construction, too. First at the local industrial parks and now new retail commercial construction. I’m in flyover country, too.
That said, bull markets climb a wall of worry. Bear markets happen and it is time for a correction.
Silly Con Valley has loads of construction (destruction of existing old buildings and replacement with Agenda 21 compliant mixed appartments / retail on bus lines) using near zero interest loans.
Only new blood I see moving in is imports from other countries. Not seing real economic uplift out of it. Individual property owners gain from 3 or 4 story appartments vs 1 story retail or light manufacturing prior. I think it is not possible to support an economy long term via de / re / construction and imported bodies looking for work… or on the dole.
What is missing is real production of anything. Only new factory I’ve seen is Tesla, and it was just a rebuild of the old Ford /NUMI / Toyota plant. One local large area converted to appartments and retail is called “The Plant” as it had been a giant GE plant when I moved here. Another was the old giant IBM plant. You can only close factories and replace them with appartments and retail for a limited time until you run out of customers…
Unknown is just how long…
True enough, but locally, much of this construction is new construction, not replacements.
AS we are in California, most of the makers have left the state.
Meanwhile the local politicians have declared the beatings will continue and increase to improve morale …pg