Leaders Index 2-1-18

The market took a bit turn for the worse while I was away. There was some strong selling that resulted in distribution on both exchanges. There were also weak closes that showed a lack of buying interest as prices fell. Today’s action was generally negative as well. After opening higher the major averages gave up the gains and closed low in their intraday trading ranges. The COMPQ declined by .35% while the SPX lost .06%. Both gave up early gains. Volume was lower across the board, but higher than average on the Nasd. Leading stocks had a mixed to slightly negative session. The leaders index was up a bit today with the index gaining .12% on the day. The index closed slightly above the midpoint of its trading range and below its important 17dma support level for the first time in a couple of months. Volume on the index was very high, but much of this was caused by volume spikes in a few big cap tech stocks. The day’s action has the look of stalling as high volume produced no gains in price. The trading action of the last week is enough to be worrisome, but not really bearish. The distribution count rose but is still a bit short of dangerous levels, and the tone of the market has changed a bit also. A lot of high quality growth stocks that have been leaders have broken down and more are joining them. The relative strength line of the leaders index has been lagging for weeks. There are also a growing number of components of the index that are breaking down and that is showing up in the index itself. In the last two weeks there has been another cluster of Hindenburg Omen signals, as five confirmed signals have occurred during this period. This is the most we have seen since 2007. There are a lot of things telling us that we are late in a cycle. The increase in interest rates in recent weeks along with signs of winding down QE in Europe and Japan could also present problems. It looks like we are getting some form of consolidation or correction. It looks a little less orderly than you would like, but so far there has not been a lot of serious damage. There have been so many times in the last two or three years that it looked like there was going to be a meaningful sell off and prices just reverse higher and move into new high ground. The odds at this point favor that outcome, but the action of the last week means that caution, in at least the short term, should be increased. Jerry