Good Monday morning and welcome back! Stocks have begun the new calendar year following the traditional script with the S&P 500 and NASDAQ finishing the week at fresh all-time highs. However, the DJIA can't seem to muster the energy to push through the purportedly important 20,000 barrier and like the Midcap and Smallcap indices, remains stuck in a sideways trading range. As such, there is a bit of a divergence going on at the present time. But one thing the major indices can agree on is that stocks are overbought at the present time. And with the S&P not exactly free and clear of resistance, the debate between our two teams rages on. So, let's turn to our objective models and indicators to see if we can get a clear picture of what's really going on.
The State of the Trend
We start with a look at the "state of the trend" from our objective indicator panel. These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.
The State of Internal Momentum
Now we turn to the momentum indicators...
The State of the "Trade"
Next up is the "early warning" board, which is designed to indicate when traders may start to "go the other way" -- for a trade.
The State of the Macro Picture
Now let's move on to the market's "external factors" - the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.
The State of the Big-Picture Market Models
Finally, let's review our favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.
The good news is that the NASDAQ and S&P 500 indices closed at fresh all-time highs on Friday. The bad news is the DJIA has been unable to break through the 20K barrier, the Smallcap and Midcap indices are not close to confirming, and the S&P 500 still has some resistance to deal with. Now mix in an overbought condition, extreme readings in sentiment, and deteriorating monetary conditions, and well, it would not be at all surprising to see stocks pull back in the near term. Perhaps the most concerning issue arising from this week's review of the indicators is the relative weak state of the Primary Cycle board. While there is not an abundance of outright sell signals from my favorite big-picture indicators, the overall weakness on the board should be noted. In other words, we do not have an outright bullish situation on our hands right now and some caution may be warranted in the near term until/unless the bulls can regain their mojo.
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of the "Trump Trade"
2. The State of Global Central Bank Policies
3. The State of U.S. Dollar
4. The State of Bond Yields
Thought For The Day:
"Have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary." -Steve Jobs
Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Officer
Sowell Management Services
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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.
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