This week the National Association of Active Investment Managers (NAAIM) Exposure Index reached the highest reading since its inception in 2006. Rather than stay 100% invested, NAAIM members will raise or lower their fund's market exposure based upon their assumptions regarding future market action. The potential range of the Index is +200% to -200%, but historically it has ranged from slightly below zero to around +100%. This week it hit +109.4%, and as a sentiment indicator I'm wondering how we should interpret it.
No new changes to the DecisionPoint Scoreboards. The NDX is holding onto its PMO SELL signal and it still has some margin to cover before the new PMO BUY signal can generate. Of particular interest today, and of course coming on the heels of a very bullish blog on the Dollar, today's drop could be starting the beginning of a right shoulder.
We've seen some very interesting sector rotation this past year as the market continues to climb higher. Money doesn't seem to really be leaving the market, just rotating from one sector to the next. The Utilities sector was a good run through October and into November. However, it appears money has been rotating out (along with the technology sector which has been lagging) and moving toward Financials and Industrials. Just look at the Dow and SPX which both hit all-time highs today. The Dollar is showing improvement despite some bearish features on its chart. Yesterday saw a new PMO BUY signal on UUP and that is now joined by an Intermediate-Term Trend Model BUY signal.
On Friday, the NDX logged a new ST Trend Model BUY signal. Currently DP indicators are looking bullish and seeing improvement in the technology sector is encouraging for the market in general.
In the DP Weekly Wrap I normally lead with a chart of the market, but this week Bitcoin was so prominent in the news, I thought a chart of the Bitcoin Index would be more appropriate. What we have here is a classic parabolic advance (the red arc), with price moving from about $400 in 2016 to almost $16,000 yesterday. Also impressive is the recent advance of +154% in just under four weeks, but we can see that the advance has become about as vertical as it could possibly be. The message I want to convey is that this kind of chart pattern is extremely dangerous. Yes, price could go higher, but it is also at a point where the parabolic could collapse, and the potential downside is back down to the support of the basing pattern between 400 and 1000.
I'm sure many have heard the phrases, "Bull Market Rules Apply" or "Bear Market Rules Apply". I thought today I'd give you two examples of how these "rules" interact with chart patterns. In particular, a previous reverse head and shoulders on UUP and the break up of a head and shoulders pattern on TLT. Before I get to that, how do you determine which rules should be applied? Using DecisionPoint analysis, it's pretty easy.
First and foremost I am pointing out the new ST Trend Model Neutral signal that arrived today on the NDX. Despite attempting to rally from the recent decline, price was unable to move high enough to prevent this Neutral signal from appearing. Today I discussed with Tom thoughts on whether we are looking at a small bounce off a decline or a last gasp before more decline. I'm of the thought that the decline and weakness are still a problem and with this signal, a big problem. Looking at the chart, I think there is more downside to digest with a move likely to support at 6200. At that point, Santa should come around and spread Christmas cheer to technology.
There were a couple of news stories on which to blame Friday's pullback, but my opinion is that the vertical up move of the prior three days was a short-term blowoff that needed to be corrected. The blowoff is most readily identified by the rapidly expanding volume midweek, capped by a buying climax on Thursday. I usually include the SPX volume panel with the SPY chart because it tells the story of the S&P 500, whereas SPY volume is all about the ETF.
Two important signal changes arrived today that you need to know about. First, the Dow Industrials triggered a new ST PMO BUY signal. Talk about a bifurcated market, the NDX gets a PMO SELL signal yesterday and today the Dow continues its parabolic rise and logs a BUY signal. The second signal is the new IT Trend Model SELL signal on the Dollar (UUP). After reviewing UUP in yesterday's DP Alert, I did warn everyone that this was coming.
Technology fell apart today as money appeared to be rotating out of technology and into financials which had a brilliant day. The PMO was yanked down below its signal line on the NDX. Yesterday, the PMO was rising and price looked strong. What a difference a day can make. Meanwhile, the SPX and OEX had very small declines today and the Dow actually finished up 0.44%.