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Stock Market Internals Suggest Rally Momentum Stalling – Mike Swanson

I haven’t been doing many trades at all since June when the stock market internals were clearly negatively diverging away from the averages. We saw the S&P 500 and the broad market fall down towards its 150 and 200-day moving averages in September and then rally in October into the current earnings season, but it is now overbought on its daily stochastics.

The overbought reading suggests that the S&P 500 doesn’t have much upside over the short-term. It’s likely to pullback or go sideways for a few weeks. But the internals of the market took a dive in the past two days, which is a bigger warning sign.

This is a chart of the percentage of stocks inside the S&P 500 above their 200-day moving averages. The dip they just took in the past two days is a warning sign for this current October rally that its momentum is probably now stalling out.

That doesn’t mean the market is going to dump tomorrow. But don’t be shocked if it doesn’t drift now into next week’s Fed meeting.

Like I said, I haven’t been doing many trades in the past few months and a bit fewer updates in the past few weeks too. I think the market will get more interesting after the Fed meeting. Gold too has firmed up in recent weeks, as I wrote the other day: inflation expectations are rising and there are some similarities to today and 1976 for gold.

-Mike

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