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A Mixed Bag of Indicators June 19, 2021

Posted by Tom in Thoughts.
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June 18, 2021 – An interesting week since there are bullish & bearish indicators on both sides. First, Small Cap stocks were hit far worse than larger company stocks (NASDAQ & S&P Indexes). Small Cap stocks are usually considered to be an indicator of more bullish “speculation”. Another negative is that Treasury Bonds continued to outperform stock indexes (see table below).

The indexes to a significant hit on Friday, but . . . keep in mind that Friday was option expiration, so big moves in either direction (and the volume) need to be taken with a “grain of salt”. I’m told that 53% of speculative call buying is by small traders (i.e. buying < 10 contracts). So Friday may just have been a “flush day” to drive as many options as possible out of the money. Lastly, equity hedging, i.e. option contracts set up to limit exposure, are at a near term low. So the “pros are not looking for a major pullback.

click on chart to enlarge

We’ve bounced off of that previous high at around the 14200 level and Money & Volume Flow look OK. Price Strength is neutral. (Sorry, my Market Sentiment indicator is not cooperating due to a problem with TeamViewer.) I any case a minor blip down on Monday to around 13840 is not out of the question, but I doubt we’ll see much more than that.

The Short Term Sector Strength table is shown below –

But, one last cause of near term concern is the yellow flag of stocks above / below their 50 day moving average. The pie chart below shows that on Friday we dropped well below the 50% mark.

My general rule of thumb is to start looking for what could be a problem when the % of stocks drop below 35% (those > 50 MA). Now the S&P 1500 Index is very broad and has a lot of Small Cap stocks in there. The question is: is this market leadership narrowing down? If so, that narrowing could be a precursor to a more significant correction. IF the general investor population is now fully invested . . . who will buy and drive prices higher?

I’m not getting excited just yet, but next week should be something that confirms or rejects a market correction theory. Have a good week. …………………. Tom ……………………..

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