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Exhaustion Underway

As we though, market entered in exhaustion mode.

Why do we believe that?

  1. Sentiment survey released this morning (http://www.aaii.com/sentimentsurvey/sent_results) gives a bull/bear spread around 30%, this extreme reading is a sign of complacency in market.
  2. Some early signs of internal deterioration are merging in markets: we can notice it on both our turnover index and our Adv Decline 21 index.

Turnover Convergence Divergence 5-13

The turnover index gave a sell signal yesterday, telling us that volumes are weakening. So, market is running out of gasoline.

ADCD 21

The advance decline 21 gives us the same view: even if price are moving up, situation deteriorates fast.

Index Chart

You can notice that market remains heavily overbought with our Trend Level Index (column TL) at 5.

Our view: surging market in overbought territory is the sign of exhaustion. The sign of capitulation from asset allocators and fund managers.

Conclusion: We believe the market could top this week. It would be perfect to notice 2 more days of advance. If it happens, it will be a great short opportunity.

Have a nice day,

 

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