Leaders Index 11-9-17

It was a pretty nasty selloff today. The major averages gapped lower at the open and continued lower for about half the session. The cause most cited is the Senate tax plan, as details came out that did not look much like real reform. About three hours into the session the market bottomed out and began to rally. None of the major averages recovered all their losses but they all closed at their intraday trading highs, which usually shows some buying interest. The COMPQ finished with a loss of .58% while the SPX declined .38%. Both well off their lows. Volume was higher on the Nasd and really close on the New York. IBD called it higher so I will go along with them. This was enough to produce fresh distribution days on all the major averages. Leading stocks followed a pattern similar pattern. After selling off the leaders index recovered much of its early loss and closed in the upper half of its trading range. The index fell 1.62% on the session and volume was much higher and well above average. This shows distribution in quality growth stocks as well. The index tagged its important 17dma moving average and rallied back to close right on its short term 9dma. The market took its worst hit in a long time. The fact that the market could regain most of its early losses is positive as it shows that some buying came in. Days like this can be scary, but the damage was a lot less than it could have been. It doesn’t look like the damage done today should derail the rally, although that could change if the tax reform effort falls apart. We are also in a favorable time of the year as the market tends to rally into the end of the year. There are some items that must also be watched. There have been a cluster of Hindenburg Omen signals in the last few weeks. Since late October there have been five large signals and seven small ones. When you get clusters like this you must take notice. This indicator is very imprecise, but it usually signals that we are very late in a cyclical bull market. There were several in late 2007. A couple of other items to consider are the high levels of valuation and the likely excessive levels of optimism. In the short term the odds still favor higher prices and we will probably see a rally into year end, but there are some storm clouds further down the horizon. Jerry