Small range day for equities yesterday, on low volume, consolidating the previous day’s advance. Gold has paused at its first meaningful resistance level of 1350. Treasury yields decline also currently arrested. So are we to see precious metals and bonds reverse their 2014 trends here whilst equities break up and away? Let’s take a look at some charts.
1. We have a possible analogy from July/August last year, shown below. Then, the market appeared to be rolling over by the end of July, only for a gap-up candle to a new high, as occurred this Tuesday. In that 2013 instance, it represented exhaustion.
2. Total put/call ratio is now 5 months under 1.0, which is a historical extreme:
Source: Helen Meisler
5. Skew remains historically elevated for 5th month. Weekly Skew reading suggestive of another top, as per the beginning of Jan and other historic incidences.
6. Investors Intelligence %bears is beneath the level associated with significant market tops in 2007, 2010 and 2011. Also note those peaks occurred on the second spike down in %bears, which is potentially what we have now (with end of Dec dip):
Source: Willie Delwiche (My annotations)
7. Euro-USD is at long term resistance and has had a reasonable correlation with stock market performance. Break out or break down here?
8. The two measures of breadth of cumulative advance-declines and % stocks above MA are divergent. Which one is more reliable as a leading indicator? The below charts show that the former (NYAD) typically expands into market peaks whilst the latter (using a combination of 50MA and 200MA) typically diverges into market peaks and is more of a leading indicator. This suggests we should be looking at a market peak now, not a break out.
In short, the balance of evidence still points to the stock market reversing down here, rather than breaking up and away. Maybe tomorrow’s employment report will be the catalyst.