Stock Market Early Morning Insights – December 19, 2016

Stock Market Early Morning Insights – December 19, 2016

There are some indications of deterioration in the broader market. As I was doing the webinar wrap up session on Saturday, I pulled up several charts which show that accumulation has been declining as A and B accumulation is now flowing down into C, D, and E. C is neutral, but D and E are distribution.

This does not necessarily mean that the market is rolling over completely, but the levels of accumulation that we have seen since the election are beginning to lose their momentum. Some groups will remain stronger than others, but the broad market hysteria that is lifted most groups seems to be tailing off.

The top chart in the body of this report shows how accumulation is rotating based upon the All Securities index. The A accumulation has dropped all the way down to meet the D distribution level, and the B accumulation is nearly down to the C or neutral line. The rose and red lines, D and E distribution are both heading up. Compare the current positions of the lines to early November when the rally began. At that point the green lines were moving up and the red lines were moving down. This is changing now even though the indexes remain near their all-time highs. This is a time for caution even though some traders seem to think this rally will last forever.

This view is under my top down charts; it is view number 11 in my add-on from October, Ron Brown, 20161008. It can be applied to any index created by HGSI. I chose to use All Securities to give us the broadest view of the market.

Friday was triple witching so the volume numbers are skewed, but the S&P 400 mid-cap in the S&P 600 small-cap indexes remain below their 10 period VPOC and both are generating negative VPA flags. The NASDAQ composite remains above the 10 period VPOC, but it too generated a negative flag on Friday, and Effort to Fall. This needs to be confirmed by a day where volume is not heavily skewed by options expiration.

I looked through many charts this weekend and most charts of interest are overextended. As prices rise the risk becomes greater because stocks have been driven up by traders who want to be in, and the buying power becomes diminished. Unless fresh news comes into a stock, it may not have much further to rise. Nvidia is a good example of a very desirous stock that was not doing much recently until news of a buy recommendation drove the stock to a new high on Friday.

Volume should fall off as the week progresses, and it takes volume to drive prices higher. Volume is the effort, and price is the result. I am going to be very cautious taking any new positions this week. REITs, Banks and Semiconductor Devices were the favorites on Friday, but many banks took a hit, so that run may be coming to an end. Even the Financial Sector is showing signs of distribution.


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