Back on Aug. 4, with the SPX trading above 1700 at an all time high, I mentioned that
the market was again in an extended position and that it was significantly overbought
on an intermediate term basis. The downtrend underway since then has partially relieved
both the extended and overbought readings, but it leaves the SPX with negative indicator
readings for the intermediate term. SPX Weekly
What is striking about the chart is the very high levels of MACD seen this summer. MACD
readings of 50.0 or above are not routine, pedestrian events but reflect top levels only seen on
the weekly chart during powerful momentum runs in bull markets. Not surprisingly, such
excesses often foreshadow sharp, temporary corrective phases which lie not too far ahead in
time. The recent positive whipsaw in the MACD reading was a rather unusual occurrence
and showed how anxious players were to capitalize on the Fed's large QE program. Risky
business from a technical point of view.
The more recent instances of Fedspeak suggests They will cut down on QE if the economy
firms and perhaps leave well enough alone if the economy remains sluggish. A continuation
of sluggish sales growth by the corporate sector implies low or no earnings growth. That the
market is no higher than in May suggests investors may now be feeling a little boxed in and
anxious that there is no clear game plan for them to follow to take the market higher.
When the latest QE was first initially put into the sketch stage in mid - 2012, the market
rallied a good five months before it was actually implemented. So, with liquidity
tightening now hanging over our heads and with no clarity yet as to when and by how
much liquidity will be parsed (let alone if it will be anytime soon), players could take some
additional time out to try and handicap just where the Fed may be headed and whether
positions should be trimmed with the upcoming pathway less manifestly bullish. Call it
an adjustment to the appearance of clouds in the crystal ball.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!