Saturday, March 26, 2016

A Technical Note

The rally from February 11, the "Dimon bottom" where JP Morgan Chase chief Jamie Dimon made a large insider purchase of his bank's shares, is looking good to a lot of investors. The latest AAII Sentiment Survey shows only 24% bearish thinking right now. Count me part of the 24%. (click on images to enlarge):

Here we have a look at by far the most bullish of all the major markets around the world, the Dow 30, and even it looks like crap. This is not what you want to see at the start of a major new leg up. The buy volume is sadly absent. A new top appears to be forming short of a new high. And the rally looks like a carbon copy of the previous one in November that devolved into the January collapse.

On a positive note, we are well above the 200 day moving average, while the 50 day appears to be perplexed by all this, first doing a positive "golden cross" in mid December, then immediately doing the "death cross" in January and now sloped back to positive. Well, I ignore the 50/200 simple moving average thing as meaningless noise and look primarily at formations and the 140/200 day ema. There we see the following:

The 140/200 ema did a negative cross clear back in mid September and has remained in a negative crossover. We appear to be bound by a downsloping resistance trend. The volume since the September cross has been overwhelmingly dominated by selling.

Having said all this, I suspect the Dow 30 will briefly surge to a new all time high amid much bullish fanfare while all the little followed broader averages, the Russell 2000 in particular, creep up to much lower resistance levels before turning lower. This narrowing breadth of the good behavior down to just the 30 stocks of the Dow is very typical of the last stages of a multi-year advance. But now even the action of these last 30 in the bunker is looking weak.

No comments:

Post a Comment