Change of Complexion - Quick Note

As stock market participants we must interpret the data we are given. Today there was a significant change of complexion in the stock market as the S&P 500 (SPY) broke below and closed below the 21 Exponential Moving Average (EMA) for the first time since the rally began in late October. Looking at the chart of the SPY below, you can see that the price closed on the day's low after a tricky reversal on heavy volume. The RSI indicator is below 50, as the MACD indicator made a bearish crossover, further demonstrating weakening momentum. If you look at the price action, the SPY tended to pull back to the 10 EMA (pink line) or 21 EMA (blue line) and then pop into the Upper Bollinger Band (grey line). This time, however, it failed to achieve this bounce, suggesting rally fatigue.

The Nasdaq 100 (QQQ) and the Russell 2000 Growth Index (IWO) both closed below the 21 EMA as well. Considering that the Intermediate Cycle is now in week 22, it makes sense that the rally and the “Swing Traders’ Market” may be at an end for now.

This Quick Note is to warn subscribers to go into Capital Protection Mode unless the indexes can reverse and close back above the 21 EMA. Although that is possible, it’s more likely that the market will pull back some more. We will provide a more in-depth analysis this weekend.

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