The market’s upper BB roller coaster ride

Mid-week market update: The S&P 500 has been riding its upper Bollinger Band. Historically, upper BB rides haven’t been all that bearish, but the current episode is occurring against a backdrop of negative RSI divergences.



 While the S&P 500 may be on an upper BB ride, it promises to be a roller coaster.



Short-term technical warnings

I am seeing other short-term technical warnings that are concerning. The NYSE McClellan Summation Index has been rolling over. What’s more, its weekly stochastic is on the verge of recycling from an overbought reading to neutral, which would be a sell signal.



The stock market advance is occurring against a backdrop of stalling bond prices and narrowing breadth. When will rising yields begin to pressure equities? Stock prices began to sell off just after today’s bond auction. What about the narrow leadership? Will a bad earnings report of the Magnificent Seven drag the market down?



The Fear & Greed Index has reached euphoric levels to be concerning. I regard this as a warning condition and not an actionable sell signal.



However, the Goldman Sachs derivatives desk estimates that momentum traders, or CTAs, are expected to sell equities in “every scenario” next week.



Putting it all together, the market has experienced setbacks whenever the upper BB ride ends. In light of the negative divergences and technical warnings, a 5-10% correction wouldn’t be an unreasonable outcome. If that were to happen, it would be an opportunity to buy the dip.


Subscribers received an email alert this morning that my inner trader had taken profits on his long S&P 500 position. The trading model reading is now neutral.


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