On my last blog, I mentioned that we are seeing some very obvious rotation out of market leaders (high beta) into the defensive areas. Take a look at today’s chart and note the diverging Chalkin Moneyflow in the tope pane (which is a fast moneyflow indicator), the slower moving moneyflow indicator at the bottom of the chart (Accumulation/Distribution), and the diverging momentum oscillators (RSI, MACD, Stochastics). Divergences are happening left, right and center while the broad S&P500 index has made new highs. I also note the test of the top of the current trend channel – another sell signal, albeit more of a near-termed trading signal.
We raised a bit more cash this week by taking profits on more of our higher beta positions. We’re around 22% cash in our equity model at this time.
Please be aware: Selloffs rarely happen in a straight line – they need to form what some call a “bull trap”—which basically catches the masses who are used to buying every dip. Expect a rally very soon – it looks like one may have already started. But then, when everyone relaxes, the real correction should start. This type of action typically forms the complex topping patterns that technical analysts assign fancy names to (double tops, triple tops, head & shoulders, rounded tops, etc). I would suggest that readers of this blog consider holding back on buying too much in the current dip. Sometimes, as Donald Trump notes, the best investments are those you don’t make.
By the way, it remains my conviction that any meaningful (10-20%) correction we see over the coming weeks or months will be a buying opportunity within a greater secular bull market cycle. Please do not take the above words of caution as some sort of prognosis of a major bear market – I view any corrective action over the coming weeks or months as a counter-trend move within the broader bull market scenario.
Keith on BNN television MarketCall: Tuesday April 15th, 6:00pm EST. Phone in with your questions on technical analysis during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to firstname.lastname@example.org