With yesterday's release of the 1/13 FOMC policy meeting notes, the Fed poured a full
cup of uncertainty into the punchbowl (See the 2/20 post just below). It came as news to
an overbought, extended stock market which was experiencing momentum loss anyway. So,
traders have lined up to book profits after an extended positive run since early, Jun. '12.
The SPX has broken below its 10 and 25 day moving averages although the latter two have
yet to roll over. My extended time MACD which had clear sailing since the end of Nov. '12
is still positive, but it is operating on a wing and a prayer now. In the upcoming SPX chart link
I also show the money flow index (MFI), a price and volume based relative strength index.
One use for the MFI is when it begins to trend down ahead of the market, especially if it
is from an uptrend that made an overbought reading. SPX With MACD & MFI
I also have linked to a five panel chart that shows the SPX with some risk measures.
SPX & Indicators The SPX portion of the chart shows the market against its 200 day m/a.
It reached a nearly 9% premium just the other day at 1530. That sort of premium represents
a significant overbought. The top panel of the chart shows the VIX or volatility index.
Readings down around 10 signify a confident, complacent market. You'll need to see whether
the VIX moves up further to clear 20, as that would warn of a correction. I would also call
your attention that price corrections which begin off a low VIX / high confidence reading
can get nasty. The fourth panel down measures the relative strength of the SP 500 ETF vs.
the long Treasury price. It is toppy at resistance in the 1.05 area and reveals a possible
transition to "risk off" mode by equities players. The bottom panel of the chart shows the
relative strength of cyclicals against the SPX. The clear uptrend here which signals growing
confidence in the earnings outlook is now being challenged via the Fed's new caution about
the future of QE 4.
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