Saturday, February 28, 2015

House of Cards

The Market Trend Model (http://bitly.com/M_Trend_Model) continues to show a positive bias despite some moderate distribution during the week.  Both the Nasdaq and the S&P 500 printed two distribution days while the Russell 2000 managed to avoid any distribution days for the week. Despite the moderate selling, stocks still ended February with their biggest monthly percentage gains in more than two years.

In addition to the recent distribution, there appear to be some warning signs on the horizon that this market may be ready to fall like a house of cards.  Most notably is the NYSE advance-decline volume which slipped into negative territory on Friday.  In addition, the S&P 500 closed below its 10-day moving average for the first time since February 2 while the 10-year treasury note yield has started to fall again.

A look at the Commodity Trend Model (http://bit.ly/C_Trend_Model) shows the February crude oil price spike up has run its course as the U.S. dollar has begun to rally again.  Especially concerning is that gold and silver have also begun to rally along with the dollar (at least for the last three days).  This type of action with both the dollar and precious metals rising could presage a move away from stocks as fear creeps into the market.  With all that said, on Saturday morning China's central bank said it would cut benchmark interest rates by 25 basis points to 5.35 percent.

At the moment stocks are in a precarious position as investors and traders struggle to price the "new normal" global economy with the heavy handed government manipulation of interest rates and currencies.  If anything, price action in the coming week should be quite interesting.