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Momentum Slowing, Due for a Pause January 16, 2021

Posted by Tom in Thoughts.
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Jan. 15, 2021 -Regardless of the reason(s), this market appears to be slowing its rise and maybe consolidating the recent gains. We see that in the % returns over the past 5 days pie chart at the bottom but also in Price Strength in this chart, which is back to Neutral.

Click on chart to enlarge

Money Flow remains down but Sentiment and Volume Flow are positive; thus a mixed bag. I draw attention to the heavy increase in volume since the first of the year (bottom of the chart). Volume shows activity (“Effort”) but not much Price movement (“Results”) in Wyckoff terms. Possible indications of Buying being absorbed by Selling. At this stage it could be a pause / minor correction or something bigger. Right now I don’t see anything “bigger”, but it’s good to be on guard for it.

Earnings (4th quarter) begin to ramp up now and that is always a catalyst for movement in either direction. Something to pay attention to since this market is rather highly valued and all ready anticipates good earnings. We closed Friday near the first level of support (12963) so failing to the next level (12652) would be a minor reaction. How investors react to disappointing earnings and news will tip their hand as to where things could go.

The reason for increased concern is the excessive optimism in the market. The chart below shows that in a historical context. We’re back to levels seen in 2000/2001 and that ending badly.

Not to say next week or month all Hell will break out, but once things start moving it could very well snow ball. Another chart shows the more recent bubbles of optimism. I’m not “dis-ing” BitCoin but there are times when evaluation (price) exceeds value of the underlying security. Then things correct back to “normal”. I’ll sure try to provide readers with a “heads-up” if I see excessive selling coming into the markets.

Here’s that 5 day return pie chart I was mentioning at the top.

Notice a slowing from last week (less green), but still half of the stocks are showing gains. So far, so good.

Lastly the short term sector strength –

Right now the more defensive sectors are not showing strength, but I’m seeing fewer “buy candidates” in my daily stock scans. So I’m pretty darn cautious in here. Mostly because I’m close to fully invested and that always makes me extra watchful. There is a lot of positive news out there but we may have to wade through the bad stuff first. Take Care and have a good week. …………. Tom ………….

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.

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