We can see over the last few days that the rally seems to be petering out in the US Stock Markets. It is always of great importance that we buy stocks as the market is about to rise, or in a continued uptrend. This allows us to maximize our profits and minimize our losses. To have a check on the future direction of the market it is helpful to compare and contrast the major indices to see if they are all still moving in the same direction or a few are flagging, see Dow Theory.
The graphic below compares the S&P 500 (SP-500), the Dow Jones Industrial’s (DJ-30), the Russell 3000 (RUA-X) and the Nasdaq Composite Index (COMPQX).
Daily Bar – Candlesticks
- Moving Averages – 10 – 20 – 200
- RSI – Relative Strength Index 14, MA 14
- Time Segmented Volume 20 – MA14
Dow Jones Industrials (DJ-30)
A nice uptrend since the beginning of February has taken place, but after 4 days of lateral consolidation we are seeing the RSI & TSV Oscillators resting on their respective 14 day moving averages, a significant push below the MA14 would signal a pull back. The 10 and 20 day moving averages on price are still signaling an uptrend, however they are lagging indicators. Both TSV & RSI are both in oversold positions.
Russell 3000 (RUA-X)
The Russell 3000 has been moving sideways for 6 days and we can see in the RSI indicator that a negative divergence is forming, however not yet complete. The RSI line has crossed down significantly through the MA14. The Russell 3000 is not looking as strong as the leading industrial stocks in the DJ-30.
Nasdaq Composite Index (COMPQX)
The Nasdaq Composite is looking similar to the Russell 3000, with the RSI moving significantly lower, and 6 days of sideways consolidation under it’s belt.
S&P 500 (SP-500)
The SP-500 has 7 days of sideways consolidation and is also starting to look tired, with oversold conditions in both RSI & TSV, and with volume reducing a pullback may be in order.
It is normal to see the large indices of smaller cap stocks tiring before the Dow Jones Industrial’s and we are certainly seeing that at the moment. With negative divergences starting to form, the rally is looking tired and potentially heading for a retracement to the next psychological support levels, probably the January highs. Although the news corporations would have you think there are specific reasons for the markets moving on a day to day basis, there are usually too many reasons to be easily summarized.
In the absence of any significant positive or negative political or economic news the markets are simply taking a rest. I imagine a pullback over the next few days / week, however pre-holiday volume may counter a pullback which might then be delayed it until after the Easter break.
If you have made some good profits over the last 6 weeks now might be the time to tighten those stop losses.