Wednesday January 30 2013
Small investors are jumping back into the stock market after abandoning it during the financial crisis. The return by individual investors is a big reason why the DJIA is pushing toward an all time high.
Individual Investors Help Drive Stock Surge, Front page WSJ today
We have been suggesting an impending top in stocks for the last two to three weeks. There is internal evidence that a shift occurred Monday and Tuesday of this week. By that I mean equities appear to be putting in at least a short term top and mining and metal stocks might have finally found some buyers. Let's take a look. First we have successfully used the Daily High Low Indicator to spot the Sept 18 high.
Daily High Low
The occurrence of the headline in the WSJ today quoted in our opening is in stark contrast to the late to the party nature of the small investor shown in this indicator. As small investors rush in, the indicator makes two lower highs and then falls. At bottom MACD curls to the downside. We have also argued that the start of 2013 will be much like the start of 1973, 40 years ago. I doubt this is THE top for the year but the late comers could be surprised at the depth of the pullback. Remember market topping is a process and we will see different asset classes acting in fractal fashion. There is also evidence that the market has regained the status seen at significant prior highs.
MYSE A/D Volume Weekly
This chart reminds me of the last scene in Alien when Sigourney Weaver has set the space station to explode. The alarms are blaring and a voice is counting down the minutes to meltdown warning all to exit. There is of course no such alarm system at the NYSE which is why blogs like this exist. Again while this may or may not be THE high for the year. one can make a case with the above picture that as we have warned the last two weeks. this is not the time to be putting money in the market.
Above note that the NYSE price index at top is well above its 50 week MA, another warning sign.
Weekly SPX
The weekly SPX is a a nose bleed 300 points over its 200 week moving average. And so the lpublic pours money into stocks.
Meanwhile mining shares march to a different drummer. We have shown in past posts that mining shares tend to bottom before stocks. This was the case in 2008 when miners made their lows in the fall while stocks completed their descent in March 2009.
GDXJ
SPX is the solid black line. GDXJ is shown in the red black bars. The two reached opposite extremes again yesterday. CCI is over extended to the down side as at previous lows. If we are right about stocks topping here, that suggests the out of favor miners might find some buyers. Yesterday after stopping abve Monday's low GDXJ rallied to close on its high of the day. Buyers overwhelmed sellers. Was that just short covering, we shall see.
Crude Oil
Crude oil looks a good deal like the stock market. But it is leading the commodity sector. The higher price lows and the upturn in the 50 day blue MA is encouraging. We suggest readers re visit our previous post on Monday where we lined up weekly crude, gold, and silver showing a convergence of the moving averages. This typically precdedes a change in direction.
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