Market Overview

2 Signs The Market Is Stuck In Neutral

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2 Signs The Market Is Stuck In Neutral

In the early going, the word of the day appears to be "improvement."

China's Flash PMI reading improved to an 18-month high with a reading of 52.0. This suggests that growth is accelerating in the manufacturing sector of the world's second largest economy, which, of course, is a good thing.

Across the pond, the Eurozone's Flash PMI also saw improvement. The Composite PMI came in at 54.0, which was an improvement over June's reading and a multi-month high. In addition, Germany's flash PMI improved to a three-month high.

Here at home, U.S. Initial Claims for Unemployment Insurance (aka weekly jobless claims) fell to an eight-year low. On the earnings front, Facebook's earnings were impressive. Ford's earnings improved.

Finally, the U.S. stock futures point to improved prices at the open. However, the market environment model remains stuck in neutral, as there is very little momentum in the current market.

The two charts below are showing the issues...

While the NASDAQ 100 stepped lively to a new cycle-high and the S&P 500 did technically finish at a new all-time high, one would be hard pressed to call yesterday's action a breakout. The bottom line is the major indices are not marching to the beat of the same drum at the present time. Therefore, it is probably best to view the current technical picture as range-bound. We will be watching the upside resistance levels on the Dow as well as the 2,000 mark on the S&P 500, which appears to be acting like a magnet of late.

However, given that there is little "oomph" behind the current move, traders may be preparing for a "pop and drop" at the 2000 level. While the bears have not been successful in their efforts in quite some time, it is important to note that they have not gone away. Therefore, we should probably expect to see our furry friends put up a fight at the big, round number on the S&P.

S&P 500 - Daily
spx_daily.png
However, for those investors who focus solely on big-cap tech names, you are probably loving life at the present time. Look at the chart of the NASDAQ 100 below...

NASDAQ 100 - Daily
ndx_daily.png
One has to go all the way back to March 2000 to find a higher close, which, of course, was during the tech bubble days. Therefore, it is clear that the NDX represents market leadership at this time.

Where's The Beef?

While it would be easy to be resolutely bullish if you focused only at the NDX and/or the S&P 500 at this time, this would also be irresponsible.

The bottom line for this market is (a) the troops are not following the generals, and (b) the momentum indicators are flashing warning signs. The key here is that during a healthy market advance, one usually sees breadth thrust buy signals going off and the major indices confirming the move. However, at this stage of the game, this is simply not the case.

As a result, investors should remain cautious. It is for this reason that most of our risk-managed strategies have taken their foot off of the gas at this point in time.

Better safe than sorry, right?

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