Written by Lance Roberts, Clarity Financial
I am on vacation this week, but there is so much going on I couldn’t miss penning a few quick views. I have also solicited some help from some friends.
Please share this article – Go to very top of page, right hand side, for social media buttons.
First, let’s review where we are from last week.
“While the market is rallying in anticipation of more Central Bank easing, especially following the recent announcement by the ECB of lower rates and more QE, the markets are momentarily detached from weaker earnings growth, weaker economic growth, and a variety of other market-related risks.
However, in the very short-term, the market is grossly extended and in need of some correction action to return the market to a more normal state. As shown below, while the market is on a near-term “buy signal” (lower panel) the overbought condition, and near 9% extension above the 200-dma, suggests a pullback is in order.”
Chart Updated Through Friday
We had also warned previously the current extension of the market, combined with overbought conditions, was due for a reversal. That reversal has indeed begun, and short-term sell signals have been triggered.
“As we have noted over the last few weeks, the very tight trading range combined with negative divergences also does not historically suggest continued bullish runs higher without some type of corrective action first.”
Chart Updated Through Friday
This past week, a disappointing cut by the Fed, and increased tariffs on China from the White House, provided the catalysts needed for a very quick market rout.
Again, this is something we discussed over the last couple of weeks with our RIAPRO subscribers previously (30-Day Free Trial). The analysis led us to previously trimming our long positions slightly, and increasing our cash holdings, heading into the Fed announcement.
July 22nd Portfolio Update: This morning action was taken and we took profits on 10% of 11 of our equity holdings. All of these positions had gains in excess of 20% since January 1st.
