So, we're in the midst of (yet) another rally in the markets. But this one feels different…
Technically, it continues to look like something broke at the start of 2018. The ruler-straight run-up in the major stock indeces seen over the past decade suddenly stopped as the year began. Since then, we've seen more price volatility than in the past several years combined.
And despite the most recent price action, both the Dow and the S&P 500 remain below their all-time-highs set in early January. And while the NADAQ is now higher, there are many reasons to be concerened about its ability to rise much further — a rationale I'll lay out shortly below.
Technical Red Flags
This latest rally is rising two important red flags.
The first is volume-related. This most recent rally has occured on exceptionally low volume, near the lowest levels seen over the past year.
This indicates that the optimism represented by today's buyers is not widespread across market participants (i.e., there's not a horde of buyers eager to keep pushing prices higher). This hints that the rally may soon run out of steam.
Low volume driving a rising market also suggests fewer buyers willing to step in to defend today's price levels if they start falling.
The second warning sign is that we're seeing Rising Wedge formations appearing in the major equity indices:
Rising wedges are generally considered to be a bearish technical indicator (i.e., that prices are more likely to fall than rise from here).
Also, when the price breaks out of a rising wedge, it tends to do so sharply (i.e., a sudden pronounced drop or spike).
Frequent Peak Prosperity contributing editor Charles Hugh Smith sounds a similar alarm. He looks at the McClellan Oscillator and sees signals that not only may the market be topping, but that the insiders are dumping their shares on an unsuspecting public in advance of a coming correction:
Market Musings: Everybody's Complacent and Confident (Again)
Take a look at the NYMO (McClellan Oscillator), which I mentioned here two weeks ago. It is shooting up to levels that correspond extremely well with market tops: Everybody's Complacent and Confident (Again), a pattern which has repeated monthly since the February "surprise mini-crash" caught the Bulls off-guard.
Every month starts with a monster rally that doesn't need any justification other than the calendar.
by edwardelinski 
