Saturday, July 25, 2015

An Icarus Moment

The Market Trend Model (data sheet) moved to a more negative bias as the S&P 500 moved lower to end the week.  This index and the Russell 2000 are now in nascent downtrends while the Nasdaq and the Nasdaq-100 continue to lead the market on the back of strong earnings reports from several individual stocks such as Netflix, Google, and Amazon.

The Nasdaq (chart) and the Nasdaq-100 (chart) continue to hold above their most recent technical breakouts, although both of these indexes are once again threatening to breakdown only one week after breaking out to new all time highs. The S&P 500 (chart) continues to see significant selling pressure and appears to be falling back to its 200-day moving average. The Russell 2000 (chart) is also under heavy distribution as this index appears to be falling back to its 200-day moving average as well.

The stock market indexes appear to be in the midst of an "Icarus" moment, having moved too high in the face of only lukewarm economic forecasts by the staff economists at the Federal Reserve.  In a leaked staff forecast of U.S. economic growth, the Federal Reserve economists see 2015 growth at a sluggish 1.55% (article) ~ much lower than publically released forecast of 2.3% - 2.7% (article).

At the moment the stock market continues to suffer from altitude sickness and even lower prices over the longer time frames may be on the horizon.  However, oversold bounces relating to seller exhaustion and calendar money flow bias can produce significant short term price spikes (article).  As usual, remain mindful that anything can happen from one day to the next.