Profunds index and sector trading

[Tom K]

Intermediate term top developing?

Although the market has been relatively flat over the past month, breadth has continued to slowly widen. Unfortunately, many of the breadth indicators I follow are getting close to overbought territory. The Nasdaq Composite's Summation Index, the New High/Low Ratio, and the Record High Percent Index are all beginning to get a bit frothy. Also note the NYSE A/D Line has moved into overbought territory when compared to it's 30 day smoothing.

This isn't to say the market can't continue to move higher, it probably will. But there are other storm clouds on the horizon: VIX and VXN are both getting into the churn zone, not a good sign. I'm also concerned by the momentum divergences that are developing on both the NYSE and NASDAQ Composites. If the indexes continue to move to new highs over the next few weeks without confirming momentum, things will might get ugly.

On the monetary front, the six month ROC of US short term government bonds went negative in mid-March. If it stays negative, and the 50 day smoothing falls below the 200 day MA, watch out. Fortunately, the fall of the US Dollar has slowed as of recently.

I never try to predict the market, just try to measure current risk and act accordingly. My best guess is that the market will continue to move higher over the next two or three weeks… that's just a guess folks. I'll follow my models when it comes to trading real money.

Nasdaq Intermediate Index:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID368318