Leaders Index 9-19-14

The market opened strong yesterday as the major averages gapped higher at the open. All the major averages made new all time or multi year highs. Unfortunately that was about it as the major averages made their intraday highs in the first five minutes and then reversed lower. The market then spent the next several hours declining before a little late strength allowed them to close off the intraday lows. The COMPQ was off by .30% while the SPY fell by .05%. The reversal off new highs is a very negative sign and IBD’s return to a resumed rally is already in trouble. All the major averages closed near the bottom of their trading ranges and volume was much higher across the board. This produces another distribution day for the COMPQ, although the decline on the SPY was to small to qualify as distribution. The increase in volume was due to a quadruple expiration day, but it still counts as higher trade. Leading stocks also had a tough session. Since the SPY went into new high ground on Thursday and the COMPQ came close I created a new leaders index. It contains 22 stocks in 17 different industry groups. I must say that it was much harder than usual to find enough good stocks to put in the index, itself a sign of weakness in the market. I suspect this will be a short lived index. The index made a new high on Thursday on both a price and a relative strength basis, but declined on Friday, although it did close in the upper half of it’s intraday range. Overall the market is looking sickly. Few stocks are breaking out and producing meaningful gains and the major averages seem to be struggling. We are also seeing the return of the Hindenburg Omen signal. We had one yesterday and just missed one earlier this week. (Those who want more information on this indicator should Google it). This indicator occurs near the end of cyclical bull markets. We had a bunch of them in 2007 near the end of the last cyclical bull and several more occurred earlier this year. We are now seeing them again. This cyclical bull is now in it’s fifth year and is very old. QE from the Fed has supported the market for a long time and it is likely the bull would have ended earlier without it. I don’t know when it will end, but when it does it is likely to be ugly. Jerry