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70 Rsi Marks Short Term Top This Week on Daily Index/Sector Charts...Starting to Unwind

S&P500 Daily Chart

The market after an extended run which mirrors the move up off our bottom back in October of 2015 tagged 70 RSI back then which marked a top. If you study our 1st chart on the SP 500 you can see in both instances we broke out of a Double Bottom pattern and ran until we hit the 70 RSI region. Yesterday the SP 500 hit 70 RSI intraday and today we started to pullback some. The Dow also hit 70+ RSI the past few sessions and also started to pullback some. The Nasdaq which has lagged some hit about 68 on RSI yesterday before pulling in some today. As we cautioned in our last couple of afternoon updates when our Daily index charts hit above the 70 RSI region if history is any guide risk is elevated. Many of our sector charts also aligned such as the Transport and Semiconductor groups as you can see if you study those charts below. The Semiconductor chart has hit 70+ RSI 3x the past year and each time it marked a significant top so we'll see how this tag plays out. So now where do we go from here. We would expect Support on dips down to our Rising 20/50 EMA's with Resistance continuing should we test back up into the 70+ RSI region off our Daily charts. We also have downtrend lines that come into play near the 2,075 SP 500, 17,700 Dow and 4,900 area on the Nasdaq should we get that far on any further move up. The confluence of overbought conditions and Resistance typically results in turbulence some of which we saw today.

Dow Daily Chart

Let me take time now to discuss the stock market from, dare I say it, a real life perspective. Not Disneyland such as the market we've been experiencing but from a real world approach. I have to say that other than 2000 when the fed blew up the biggest bubble in history, this is the absolute worst environment for stocks I've experienced in my career. Again, I realize it's not acting poorly. I'm just discussing truth for the moment. So be patient and then I'll get back to Disneyland so don't worry bulls. We have massive negative divergences on all the monthly index charts. Severe would be too little of a word to describe how bad they'll be if we break out on the Sp down the road some day in the not too distant future. They don't get any bigger or nastier. They simply do not. No argument here folks. That's a reality. They couldn't be more against the bulls. Sorry bulls, it is what it is. After divergences we turn our attention to valuations. Completely off the charts wrong in a number of sectors and inappropriate. Earnings have been contracting the past couple of quarters and mixed at best of late. Misses, misses and more misses including NKE on its outlook last night. No one cares as they go down and then blast up but again, in the real world they stink to be kind. Valuations are so unrealistic it's hard for me to find the right word to describe it. Just off the charts insane.

SOX Daily Chart

The MACD on the SP 500 monthly chart hit the highest level going back 35+ years so if that's not some type of Fed induced bubble we're not sure what one would be. Economies from all over the world are standing and barely surviving only due to the actions of the global central bankers. Low rates and sometimes negative rates along with endless inputs of free cash to the banks are the only things holding this together but in truth, they're not doing anything as these things have been in place globally for a long time and have nothing in the REAL world to help whatsoever. Global economies are still weakening. Useless but not for the perception it creates. So now we have bad divergences, ridiculous valuations and weakening economies globally. But wait, there's more. Most companies that are reporting their current earnings aren't saying anything positive about the future meaning, yes, things are bad now but they'll be getting better. They're saying things don't look to be getting any better any time soon. Outlooks are weakening. It's bad enough to have a weak group of earnings reports but it's far worse when they say the future isn't too bright. When you add all of these things up it tells me the market should be dramatically lower than it is but then we get back to Disneyland and the fed. How long can these folks hold the global markets up? I have no idea and neither does anyone else. It makes me very nervous and anxious playing anything long but for now I follow the bouncing oscillators. Be very careful out there. Can this keep going up? You bet. Could reality hit at any time. You bet. In addition, 70 rsi on the daily charts did cause a top for the short term. We'll see if that holds the market down for too much longer.

Dow Transports Daily Chart

 


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