Written by Lance Roberts, Clarity Financial
Last week, we said:
“The market is trading well into 3-standard deviations above the 50-dma, and is overbought by just about every measure. Such suggests a short-term ‘cooling-off’ period is likely. With the weekly ‘buy signals’ intact, the markets should hold above key support levels during the next consolidation phase.”
“As shown above, that is what is currently occurring. While the market remains in a very tight range, the “money flow” sell signal (middle panel) is reversing quickly. Importantly, note that the money flows (histogram) are rapidly declining on rallies which is a concern.”
While the “sell signal” remains intact, not surprisingly, the breakout above the consolidation on Thursday failed, with the selloff on Friday putting the market back where it started the week. Furthermore, the MACD “sell signal” in the lower panel also suggests that prices may remain somewhat capped for the time being.
As noted, the concern remains of the decline in actual money flows. While the market is holding up near all-time highs, the support of positive money flows continues to deteriorate. Weakening money flows with the market remaining at more overbought conditions also suggest upside is limited over the next few weeks.
We discussed these concerns in more detail in the latest 3-Minutes video (click to subscribe.)
For now, the market trend remains bullish and doesn’t suggest a sharp decrease of risk exposures is required. However, after reducing equity exposure previously, we are starting to look for the next short-term opportunity to increase risk. However, we aren’t expecting much before we get into the summer months, where, as we will discuss, the risk begins to rise markedly.
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