Good morning and happy Monday. I'm not sure I can add anything earth-shattering to the refrains that "the market needs a pullback," "everyone is expecting a pullback, therefore it won't happen," "the economy is slowing but earnings are great," etc. etc. etc. My key market tell – corporate credit and selected credit derivatives – continue to hum along (see the Buzz & Banter, subscription required, for regular updates), with a few wrinkles here and there just to keep people honest; that suggests the bull market that began in 2009 is not ready to quit. It says little as to when we may have a 3-5% correction, and if the "wrinkles" get deeper it may presage something bigger, like the 2010 and 2011 summer drops, or last year's May-June pullback. But the underpinnings of the "big picture" are positive. So below I am going to offer some weekly and monthly DeMark charts which in a vacuum may be signaling the potential for some tradable turning points.
iShares Nasdaq Biotech Index (IBB)
[More from Minyanville.com: A DeMark Look at IBB, XOP, and Some of Their Components ]
The weekly chart is flashing red. Last week printed a TD Sell Setup and a TD Camouflage Down bar. Think of TD Camouflage Down as action where price rises despite a preponderance of sellers. The monthly is on bar 12 of a TD Combo Countdown Sell, close enough to a 13 to warrant even more caution. But perhaps most telling of how extended the IBB is, the last three weekly bars have closed above the upper Bollinger bands, despite the fact that the bands have only been wider a couple of times in the last five years.
Financial Select Sector SPDR (XLF)
The weekly chart is on bar 12 of a TD Combo Countdown Sell, and the monthly is on bar 8 of TD Sell Setup. Looking at the conventional patterns, my guess is that these buying exhaustion signals will work themselves out more through an extended sideways move than a sharp pullback.
Energy Select Sector SPDR (XLE)
The weekly chart completed a TD Combo Countdown Sell seven weeks ago, the price "flipped" three bars later, and it's now on bar 4 of a TD Buy Setup. On the bullish side, this action is taking place above TD Level Up (i.e. above resistance), the monthly chart is on bar 4 of a TD Sell Setup, and the price is straddling TD Level Up. A qualified break of the monthly TD Level Up would argue for another leg higher.
Russell 2000 Index (INDEXRUSSELL:RUT)
The weekly chart completed a TD Combo Countdown Sell seven weeks ago and printed a "Price Flip" three weeks later. The price flip also completed a TD Megaphone Sell 7 pattern. With the monthly chart on bar 8 of a TD Sell Setup, I would not be too aggressive on the long side.
Nasdaq-100 Index (INDEXNASDAQ:NDX), (QQQ)
Come Wednesday the monthly chart will complete a TD Combo Countdown Sell. However, a qualified TD Prop Exhaustion Up target of 2991.57 has not been reached and remains as an upward magnet. With the weekly chart neutral and so much of the index tied to an Apple (AAPL) stock that refused to crater following an awful quarter, I'm not tempted to get too aggressive on the downside.
S&P 500 (^INX)
The monthly chart is about to complete simultaneous TD Sell Setup and TD Combo Countdown Sell counts. That spells major buying exhaustion and as you can see in the chart, price has had a tendency to respond to these signals. The weekly chart shows an 11 on the TD Combo Countdown Sell and a satisfied qualified TD Prop Exhaustion Up target of 1592.20. This argues for sideways at best, but more likely a tradable correction.