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Divergences Continue

Published on July 26, 2014 by in Market Comments

The trend that started two or three weeks ago where our core indicators moved up and ancillary indicators fell continues again this week. ¬†Below are updates to some of the things I’m watching without much commentary. You can view this post for an explanation.

I use the ratio between VIX and VXV to signal “all clear” when it falls back below .9 after a choppy of falling market. It couldn’t quite get there this week.

140726vixvvxv

 

Large caps are still outperforming small caps…rotation to safety starting?

140726spxew

 

Junk bonds (JNK) are still under performing high quality bonds (LQD)…risk off.

140726jnkvlqd

 

The individual stocks I’ve been watching for clues to a direction are starting to diverge. Market participants are becoming more selective in the momentum names which caused a decline early in the year. ¬†Here are some examples.

Twitter (TWTR) is still in a holding pattern and hasn’t decided which way it wants to go.

140726twtr

 

Baidu (BIDU) is breaking higher.

140726bidu

 

3D Systems (DDD) looks like it’s breaking down.

140726ddd

 

Breadth is still holding up and as I’ve pointed out for the last year, the broad market won’t likely enter a correction until breadth breaks down. NYAD is painting a tiny divergence, but nothing significant.

140726nyad

 

Conclusion

Our core indicators are all still strong. Risk is rising (one of the four components of our market risk indicator is signalling). Ancillary indicators are starting to warn and market participants are getting more selective. We position our portfolios based on core indicators so we’re still 100% long, but watching closely for signs that more dominoes are falling.

 
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