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Stuck In The Middle

140503indexes

For the last few months the major indexes have been diverging from each other.  While the Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX) have traveled sideways in a range, the Nasdaq Composite and Russell 2000 Index (RUT) fell to their 200 day moving averages and bounced back to their 50 dma.  As you must know by now this is a result of rotation out of the high fliers from 2013 into large cap and value stocks.  The rotation caused damage in Nasdaq and RUT while at the same time kept SPX and DJIA in the range (DJIA made a marginal new high this week, but not a clean break of the range). With Nasdaq and RUT stuck in the middle of moving averages and SPX and DJIA stuck in a range it’s decision time.  Over the next few weeks the market will most likely turn over and start a down trend or break higher out of the current range.  I wish I could tell you which

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Nasdaq New Highs and Lows a Concern

One thing that concerns us about the recent rally is the lack of new highs and the increasing amount of new lows.  If you look at the chart of the Nasdaq Composite below with its new highs in green and new lows in red you can see that all is not well with the index. We’re seeing negative divergences when we want to see confirmation of the rally.  An example of a positive divergence happened at the low made in early June.  As the market was breaking to new lows the number of stocks also hitting new lows was decreasing.  At the same time the number of stocks hitting new highs was increasing.  This was a positive divergence that gave hints that a good rally could follow.     Once the rally started the number of new highs and new lows on Nasdaq performed properly for a lasting rally.  Then we got a bad jobs report on 7/6/2012.  You can see in the chart the serious damage the jobs report

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