Weekend Review 03/26/2017

The general market continues to show signs of waning breadth as the number of caution flags continue to increase.  In the least I expect the market to continue to chop in the near term but would not rule out a 5-10% pullback.

One of the main reasons I suspect a pullback in the near term is that the IWM continues to show the most weakness.  Typically when this happens there are two theories of thought: the IWM will rebound and play catch up, or this weakness will begin to spread into the SPY and QQQ.  Assessing a daily GMMA chart the later is becoming evident as the SPY has begun showing waning momentum on a 2-Month time frame coupled with a GMMA crossover.  The QQQ is now showing waning momentum on the 2-Month time horizon but has yet to crossover.

IWM GMMA Daily

SPY GMMA Daily

QQQ GMMA Daily

On a weekly time frame the GMMA for these three indexes has yet to show the characteristics and pattern typically associated with a much deeper pullback.  Until weakness extends to this period I continue to give the overall market a good bill of health and the benefit of the doubt for continued upside down the road.

IWM GMMA Weekly

SPY GMMA Weekly

QQQ GMMA Weekly

Another reason why I suspect any pullback on the near term horizon would be somewhat shallow is that the percentage of stocks above their 200 period average is above 50.  Were this below and declining I would conclude there to be a high probability of a deeper and/or longer term correction looming, but this is not the currently the case.

T2108

The percentage of stocks above their 40 period moving average has yet to reach a zone where sustainable bounces tend to occur.  Market breadth on this time frame using this metric is not extended far enough to the downside for me to become bullish on any snap back rally at this time being sustainable without evidence of buyers stepping into the market with authority and broad based buying.

T2107

Overall I'm not seeing much evidence to become exceptionally pessimistic about the markets potential to the upside, however I'm seeing enough signs to be cautious and lean towards further downside in the near term.  I find it best during times of conflicted signals or changes of character in the market on my time frame to sequester.  These are the times I find it best to keep an open mind, ignore the noise, and focus on the signals.  Always be prepared for which ever way the wind blows, but make sure it's actually blowing.