Dow Jones Industrial Average: Signs Of A Major Market Top?

bearbull21-150x1501Chris Puplava: The S&P 500 (INDEXSP:.INX) hit another milestone this week by closing over 1800 for the first time. The Dow Jones Industrial Average (INDEXDJX:.DJI) also hit a milestone by closing over 16,000 to end the week at 16,064.80. The NASDAQ also finished the week on a positive note and remains less than 10 points away from hitting the 4,000 mark for the first time since September 2000. While the markets may be hitting new highs, the percent of participating stocks in the S&P 1500 is less now than a month ago when the market was hitting new highs. Declining participation on the rally and weakening market momentum may indicate a potential short-term top on the horizon.

S&P 500 Member Trend Strength

As shown below, the long-term outlook for the S&P 500 is clearly bullish as 83.4% of the 500 stocks in the index have bullish long-term trends. The market’s intermediate-term outlook has also improved, jumping from 50.4% a month ago to 78.0%, pushing it deep into bullish territory. The market’s short-term outlook also remains in bullish territory at a reading of 63.0% this week, though slipping from last week’s 72.8% reading. What is most important is the market’s strong long-term outlook, which still does not suggest a market top is forming.

* Note: Numbers reflect the percentage of members with rising moving averages: 200-day moving average (or 200d MA) is used for long-term outlook, 50d MA is used for intermediate outlook, and 20d MA is used for short-term outlook.

The most important section of the table below is the 200d SMA column, which sheds light on the market’s long-term health. As seen in the far right columns, you have 83.8% of stocks in the S&P 500 with rising 200d SMAs and 83.2% of stocks above their 200d SMA. Also, all ten sectors are in long-term bullish territory with more than 60% of their members having rising 200d SMAs.

Source: Bloomberg

S&P 500 Market Momentum

The Moving Average Convergence/Divergence (MACD) technical indicator is used to gauge the S&P 500’s momentum on a daily, weekly, and monthly basis. The daily MACD for the S&P 500 went on a buy signal last week as now all three time frames show a buy signal.

Source: Bloomberg

Digging into the details for the 500 stocks within the S&P 500 we can see that the daily momentum for the market has slipped to 47%, down from a reading of 77% three weeks ago as it has slipped into neutral-bearish territory.

The intermediate momentum of the market slipped slightly from last week’s 67% reading to this week’s 66% reading, with the market’s intermediate momentum still holding onto bullish territory.

The market’s long-term momentum remains solid at a strong 79% this week, putting it well into bullish territory.

Source: Bloomberg

While it is encouraging to see the market’s long-term momentum remains in bullish territory, the market’s weekly momentum had been diverging with the S&P 500’s advance with a series of lower highs. 

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