The winter solstice is only about five weeks away. Shadows are lengthening and the light is changing. Last week’s Market Light was holding tenaciously to its vibrant Green, but fall has caught up with it and now we change to a seasonal Orange – Cautious and Deteriorating.
Mind you, the leaves have been coming off slowly. There has been no sudden storm or biting frost to bring them down. Yet the trees are bare and the Market is looking more in the mood to take a snooze. It is too soon to tell if it will be a full hibernation, yet the yawns are turning to snores and things just feel unsettled. You can see from the Light that there has been gradual – yet telling — change. Each of the short-term indicators have flashed a warning fall color. The advance/decline line has turned south as have the Daily MACD and Parabolic Stop & Reversal indicators. The Weekly MACD holds Green as does the Intermediate Exponentially-smoothed 22 Week Average. (Let us know if you have questions about the indicators used in the Market Light determinations.)
All is not lost, however. There has not been a big loss of points for the Dow, it is more about direction and momentum. You can see on the regression line on the chart below (the long, straight line stretching lower-left to upper-right) that we are still above trend from the low last April. And the Dow has reversed down into a column of Os on a Point & Figure basis as of yesterday’s mild loss. We are still about 500 points above the 50-day moving average, and that would be the next big test.
Strong ETF sector relative strength winners this week are Oil & Gas Services (XES), Natural Gas (FCG), Oil (DBO), Semiconductors, (SOXX), and Rare Earth Metals (REMX). Weak ones were Telecommunications (IYZ), Mexico (EWW), Metals & Mining (XME), Brazil (EWZ), and Latin America (ILF).
Our Technical Tea Leaves are reading caution as well – though perhaps not so strong as last week: The exponentially smoothed advance/decline line has turned negative when the up/down volume oscillator and the advance/decline oscillator are already negative. In this market, this is viewed as a bearish signal that could precede a downward price movement.