Expect a fairly nice selloff to start the week. Futures are down as stocks fell in Europe and Asia on a strong dollar. We can’t imagine that the Iranian election fiasco isn’t weighing down markets too. With Mahmoud Ahmadinejad in charge, who knows what that crazy little man might do? Probably something real stupid to change the narrative.
We know what are indicators are doing. Two stand out in light of today’s likely downward start. Our trend analysis shows the indexes flattening out last week and struggling to penetrate some resistance. We can see the lack of enthusiasm to get through resistance in our short-term momentum score, which has fallen all the way to zero. Overall, our momentum score is still in the green along with our market leadership model, but both weakened a bit last weak.
One of our biggest concerns is the lack of volume. It seems like day after day trading gets lighter and lighter. At some point there needs to be conviction in this rally that is backed up with strong volume. If not, there will be very little in the way of stock in strong hands on the way down. Think of volume as the foundation of a house. Strong volume means a strong foundation, weak volume means a shaky foundation. A powerful wind won’t shake a house built on bedrock, but will blow away a house on sand.
As you can see on the Dow Jones Industrials chart below, there is a whole lot going on at the same time. We have a trend line that we haven’t violated running into resistance. All on weak volume, something has to give.
Here’s to the coin landing on heads.
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