Something just don’t feel right about the current rally to new highs. We are beginning to see signs of deterioration while at the same time not the same characteristics that have been present at previous bull market peaks.
For instance, momentum is creating a negative divergence on the daily chart but not the weekly. The Advance-Decline Line didn’t confirm the most recent high but the divergence is minor and not as large as in 2000 or 2007. Margin debt has begun to turn lower over the last several months, but we have continued to see the Dow Industrial and Transport Indices confirm the new highs each have been making. If we do begin to correct, which I think is possible (anything is possible!). I would be surprised if it turned into a bear market. Corrections are healthy and part of an up trend. We’ll see what price brings us.
As I wrote last Wednesday, Trend matters and isn’t something we should forget about. The S&P 500 ($SPX) continues to be in an up trend as price remains above the 100-day Moving Average, 20-day Moving Average and both the short-term and long-term trend lines.
While the S&P 500 ($SPY) may have made a new high last week, breadth did not confirm. Both the Advance-Decline Line and the Percentage of Stocks Above Their 200-Day MA were off their respective highs as the equity index broke to a fresh level. The A-D Line finished out last week at its short-term up trend line, which keeps breadth in the bulls favor but just barely.
This next chart comes from Dana Lyons which is a must follow on Twitter. This chart looks at the Nasdaq 100 index ($QQQ) going back to 1998 while also showing the percentage of Nasdaq stocks making new highs at the same time of the underlying index. As Dana points out, last week’s new high saw the fewest new highs in the stocks that make up the index. This is not what bulls want to see.
Based on Dana’s calculations, even in 200 when breadth was awful and there was very little participation in the up trend by individual equities, there were more than there is today. That’s pitiful.
Like Breadth, we have a negative divergence in the Relative Strength Index as this momentum indicator made a series of lower highs going into last week’s new high for the S&P. We also have a divergence in the MACD and Money Flow Index indicators.
In the webcast I did with MarketWatch in early June I said that one of my favorite indicators to watch was the Semiconductor sector ($SMH). I like to see semi’s confirm the price action that takes place in U.S. equities. While 2014 has been the year of “new highs in stocks” we’ve seen the semiconductor sector market right along hitting new highs as well. Until last week.
Last week I tweeted out a similar chart to the one below, showing that semi’s were not confirming the new high. As of the close on Friday, $SMH has wiped out all of its July gains. We don’t normally see this type of behavior and this kind of divergence unless stock prices are preparing to head lower. Do semiconductors always foreshadow corrections in stocks? No, nothing is perfect. But based on the small bit of weakness we saw in the S&P on Friday, I think it’s possible we start seeing equities chase after semi’s.
60 Minute S&P 500
On the intraday chart of the S&P 500 we can see negative divergences was created as the RSI and MACD indicators made lower highs as the S&P made a new high. This was then followed by price dropping back below the prior high.
Once again the Energy Sector ($XLE) led in relative performance for the week. Followed closely by Technology ($XLK) and Health Care ($XLV). The Consumer space got hit with Consumer Staples ($XLP) and Discretionary ($XLY) the two worst performing sectors last week.
Utilities ($XLU) and Energy are still the two leading sectors for 2014. Tech, Health Care, and Materials ($XLB) round out the group of sectors that are still outperforming the S&P 500. Consumer Discretionary and Industrials ($XLI) are the worst performing sectors YTD.
Recommended for You
An oncoming wave of oil industry job cuts and restructuring is only the first inning of a long game, experts tell CNBC.CNBC
Visa (V) is gaining after-hours Thursday after beating analysts' estimates in the fiscal first quarter and announcing a four-for-one stock split.TheStreet.com
Fidelity says 401K savings at a record, but Yahoo Finance's Jeff Macke says that won't be enough for us to retire early.Yahoo Finance
Jim Cramer wants to prepare investors for the next market nosedive. You might be surprised at what has been causing it!CNBC
You’d think that enrolling in Medicare would be easy; after all, most Americans are entitled to it when they turn 65. But there are lots of ways to go wrong. One came back to bite Joyce and Dan O...Consumer Reports
With the Dow nearing a 1,000 point pullback from its high and the S&P 500 nearing a 100-point pullback, investors are starting to wonder again if a full market correction is beginning to take hold.24/7 Wall St.
Alibaba's stock plunges after the Chinese e-commerce giant reported quarterly revenue that fell short of expectations.CNBC
CINCINNATI (AP) — The owners of a $4 million suburban mansion that burned to the ground last year are suing their insurance company for almost $60 million, saying it didn't honor their claims.Associated Press
The currency, the worst performer in emerging markets this month, weakened as European Union foreign ministers gave the go-ahead for preparatory work on “any appropriate action” to force Russia to observe a cease-fire in Ukraine, according to a statement issued after talks Thursday in Brussel.…Bloomberg
Chicago Sun-Times Washington Bureau Chief Lynn Sweet and Republican Strategist Angela McGlowan on President Obama’s declining job approval numbers and the confirmation hearing of Attorney General nominee Loretta Lynch.Fox Business Videos
Credit Suisse analysts Gregory Lewis and Neesha Khanna think Transocean (RIG) and Diamond Offshore (DO) "will think twice about an outright suspension" of their dividends after watching what happened to Seadrill (SDRL). Think dividend cuts (Transocean and Diamond Offshore are consensus) and…Barrons.com
- AdChoicesInstant CheckmateSponsored
A new site has made it easy to find out the truth about the people you already know and people you meet! Simply type in a name and select a state!
In just about every survey of the best place to...Business Insider
NEW YORK/LONDON (Reuters) - Gold prices tumbled more than 2 percent to a two-week low on Thursday, while silver saw its biggest decline in 1-1/2 years after the Federal Reserve signaled it was still on track to lift U.S. interest rates this year. In Wednesday's policy statement, the Fed said the…Reuters
Something bizarre is happening on Turkey’s accounting books, and nobody’s quite sure why. Turkey attracted $7.9 billion of income from unexplained sources during the first eight months of 2014, compared to an outflow of $90 million during the same period a year ago, according to the central bank…Bloomberg
The IPO market has been particularly fruitful recently for so-called fast-casual restaurant operators such as burger chain Habit Restaurants Inc and others that hope to replicate the sizzling growth of Chipotle Mexican Grill Inc . Preliminary demand prompted Shake Shack to raise its expected IPO…Reuters
If you have a credit card, then you'll occasionally receive checks in the mail from your card issuer. Here's what you need to know before you use them.Credit.com
How can one man make such a huge difference for the double arches? Jim Cramer thinks this is significant, and could hold the key to the future.CNBC
PARIS (AP) — Singer Carla Bruni, actress Catherine Deneuve and burlesque performer Dita Von Teese were among regulars attending the spectacular displays at Paris' haute couture week Wednesday.Associated Press