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Tuesday, May 23, 2017 8:05:06 AM
Is This The Topping Process? Equities, A/D Line & COT Report Continue Sideways
By Almanac Trader | May 22, 2017
The market has gone virtually nowhere since March 1st and now we have matching sideways action from some solid old school technical indicators. As move into the latter part of the notorious “Sell in May” period we ask ourselves, “Is this the topping process?”
We are not expecting much more than a typical 5-10% summer/fall correction. But with all the turmoil surrounding Washington and President Trump, markets could get jittery real fast should economic data come in weak or for Wall Street to deliver some disappointments.
At a bare minimum the usual trading volume slowdown and seasonal weak spot, especially August-October, is likely to give the market pause. Add in underlying underwhelming technical readings from the A/D Lines (Advance-Decline) and COT Report (Commitment of Traders) and a potential topping process begins to emerge.
The A/D Line, which is a daily cumulative sum of the number of advancing stocks minus declining stocks, has been also moving sideways since March (see Chart above). But most concerning is the downtrend since the end of April in the NASDAQ and Russell 2000 A/D Lines, especially as the NASDAQ Composite Index has been on the rise. This sort of divergence is a bearish signal.
Then there is the Commitment of Traders (COT) Report on the S&P E-Mini Futures (ES) in the chart below. The COT Report shows the net number of Small Speculators, Large Speculators and Commercial hedgers long or short. The commercials are usually on the right side of the market as they are basically the “house.” Large specs (Fund Managers, Brokerage firms and Wire Houses) also tend to be on the correct side of the trend but less so than small specs. Small specs are notoriously wrong.
Currently all three are rather flat. A similar reading last January preceded a rally whereas a similar reading early last October was followed be a little selloff. Its May, markets are flat, reading are tepid. Caution is in order.
http://jeffhirsch.tumblr.com/post/160961052298/is-this-the-topping-process-equities-ad-line
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By Almanac Trader | May 22, 2017
The market has gone virtually nowhere since March 1st and now we have matching sideways action from some solid old school technical indicators. As move into the latter part of the notorious “Sell in May” period we ask ourselves, “Is this the topping process?”
We are not expecting much more than a typical 5-10% summer/fall correction. But with all the turmoil surrounding Washington and President Trump, markets could get jittery real fast should economic data come in weak or for Wall Street to deliver some disappointments.
At a bare minimum the usual trading volume slowdown and seasonal weak spot, especially August-October, is likely to give the market pause. Add in underlying underwhelming technical readings from the A/D Lines (Advance-Decline) and COT Report (Commitment of Traders) and a potential topping process begins to emerge.
The A/D Line, which is a daily cumulative sum of the number of advancing stocks minus declining stocks, has been also moving sideways since March (see Chart above). But most concerning is the downtrend since the end of April in the NASDAQ and Russell 2000 A/D Lines, especially as the NASDAQ Composite Index has been on the rise. This sort of divergence is a bearish signal.
Then there is the Commitment of Traders (COT) Report on the S&P E-Mini Futures (ES) in the chart below. The COT Report shows the net number of Small Speculators, Large Speculators and Commercial hedgers long or short. The commercials are usually on the right side of the market as they are basically the “house.” Large specs (Fund Managers, Brokerage firms and Wire Houses) also tend to be on the correct side of the trend but less so than small specs. Small specs are notoriously wrong.
Currently all three are rather flat. A similar reading last January preceded a rally whereas a similar reading early last October was followed be a little selloff. Its May, markets are flat, reading are tepid. Caution is in order.
http://jeffhirsch.tumblr.com/post/160961052298/is-this-the-topping-process-equities-ad-line
• DiscoverGold
Click on "In reply to", for Authors past commentaries
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Your Due Dilegence is a must!
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