As of Friday, November 10, 2017 at the close of trading EquitySurge™ has continued a strong sell signal for USA equities.
Stocks are wavering. The DOW Transports are down 9 of the past 10 days, small caps are faltering and high yield is giving a strong warning about the overall liquidity situation in the stock market.
In addition to the major outside reversal day the Nikkei had on Thursday Tokyo Time, now the DAX Index in Germany has printed an outside reversal weekly candle this week.
Here are a few charts to illustrate the current situation:
From Charlie Bilello at Pension Partners regarding the DOW Transports:
From NorthmanTrader.com here is the German DAX Index weekly chart showing this week’s outside reversal candle. The lower subgraph shows how German Government 10 Year yields have steadily fallen as German stocks have risen since 2008-2009. What happens to German equities if yields begin to rise from these all-time lows?
Here is the New York Stock Exchange Advance-Decline Line (AD Line) which is an excellent measure of breadth (money flow) in the stock market. The second subgraph is the S&P500 Index. Generally in a bullish uptrend you want to see the AD Line moving higher when stocks are consolidating sideways or declining. This means that breadth is healthy and the uptrend in stocks should continue; in other words, “Buy the Dip!”
However when the AD Line starts dropping but stocks keep moving higher, it’s a warning that breadth (money flow) is starting to dry up, and it’s time to seriously consider selling your long positions to realize gains from the uptrend.
The purple trend lines in the chart highlight the positive and now negative divergences between the AD Line and the S&P500 Index over the past year.
Finally here is our Macro Key Market Indicator. The lower 3 subgraphs show high yield, DOW Transports and small caps in a clear downtrend, but the S&P500 Index is still rising. Can this condition persist? Yes. However the more likely scenario is that the S&P500 Index drops to “catch up” to what the other 3 have already done. Judging by the significance of the declines the other 3 have seen over the past several weeks, the S&P500 Index catch-up drop could be eyebrow raising!
If you would like to review the EquitySurge™ trading signals generated in 2016 and so far in 2017 please see the Trading Signal Performance Chart page.