Saturday, May 16, 2015

Mixed Bag

The Market Trend Model (http://bitly.com/M_Trend_Model) moved to a positive bias on Thursday as the market indexes once again moved through resistance and look to be in breakout mode.  With the failed breakout and failed breakdown in April, it appears both buyers and sellers are likely second guessing the current price move as weekly volume was below average across the major indexes.

According to Joseph Fahmy (@jfahmy), the Investor's Intelligence bullish sentiment is at a six month low and the American Association of Individual Investors bullish sentiment is at a two year low.  Should the markets continue to gain strength, this kind of extreme negative sentiment could fuel the market indexes higher if a "fear of missing the move" takes hold of investors.

The case for falling stock prices has been purported ad nauseam for several years without coming to fruition.  Recently Bill Bonner of The Daily Reckoning summed up the often cited bear case:

"The S&P 500, the Dow and the Nasdaq — are at near record levels.  Why? Because they represent good value for money? Or because they are propped up by near-zero interest rates and a flood of QE liquidity, now coming from Japan and Europe? Don’t forget: Global growth is slowing. US corporate earnings are falling. Europe is in danger of coming unstuck in June, when the Greeks have to face up to making a big payment on their debt.  And China looks more and more like a massive case of malinvestment on the verge of going bad." Read the full article here ~ Bear Case.

The market indexes themselves offer a mixed bag as the S&P 500 printed a record close on Friday while the Russell 2000 remains below its 10-week moving average for a third consecutive week. And the Nasdaq is somewhere in between as this index closed above the significant resistance level at 5,000, but 1.6% below its all time high.

The weekly chart of the Russell 2000 (http://scharts.co/1Eesw83) is somewhat ominous as this index appears to be in the process of building a bear flag. Meanwhile, the weekly charts of the Nasdaq (http://scharts.co/1DwrrF6) and the S&P 500 (http://scharts.co/1DwrIaY) show a market that has been chopping back and forth for the past several weeks.

At the moment the market's price movement is upward, but remain mindful that anything can happen from one day to the next.