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Market Health Stable as S&P 500 Falls

Over the last week our measures of market quality, trend, and strength all improved even though the S&P 500 Index (SPX) declined. Measures of the economy fell a bit and our core measures of risk started suggesting a little caution. Our market risk indicator is still a long way away from any warning signal with only one of four components currently negative. Overall, the indicators were fairly stable and suggest that the current decline is healthy consolidation. Of course this could change, but I take the evidence as it comes. What I’ll be watching most closely is our core measures of risk.

None of the indicators moved enough to change any of our current portfolio allocations.

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One thing of note this week is that Elder Impulse for the S&P 500 index on a weekly chart has turned blue. It appears that it will close with a mild warning today. A blue bar often precedes at least a few weeks of sideways movement and occasionally is the start of a more serious decline.

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Elder Impulse is in line with what I’m seeing in the Trade Follower’s social media stock market indicators. Last week they gave a strong warning of a short term top. The new uptrend line in the following chart has now been broken which indicates that the bulls are stepping aside as the bears are getting more aggressive. This could create a choppy market similar to what we saw at the first of the year.

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