Sunday Update: 03 September 2017

It was tough to sit on the sidelines and watch the market rally this week but, 1 week does not make a trend and some very smart people see lots of risk in the market right now.  Take a look at this article by Sue Cheng of Market Watch.  She lays out a great history of the Dow Jones Industrial Average (DOW).  While the majority of the article focuses on gains over the years, the underlying theme is to take gains in the good years but be aware that the market also has periods of high risk and correction.  Read all the way to the end of the article for a pretty ominous warning… 

Short Term

The market rallied this week but did not take out the prior high from early August.  For the past 2 weeks the S&P500 (C fund) has consolidated below the 50DMA and broke out above it on Thursday.  With the exception of Thursday, every other day this week prices rose on very low volume.  That means that relatively few shares were traded.  Big institutions are not buying into this new rally attempt (yet).  We have not had enough consolidation to absorb the gains since the post election breakout.  It is possible for prices to move higher from here in the short run, with the MACD and Stochastic turning up this week.  Still, I revert back to Rule #1: Don’t Lose Money.  The market risk is too high for me right now.  I’m looking for a longer term consolidation, ideally down to the 200DMA.

Long Term

The weekly chart below shows the C fund moving up on below average volume for the last 2 weeks. If volume had been up around 15BN shares this week, things might be different.  While the price chart is the primary indicator, volume represents the energy of the rally and it’s just not there right now.

The S fund had a big week but also had dropped more than the C and I funds in July and August.  While the price rallied this week with MACD and Stochastic beginning to turn, the long term trend of the indicators is down.

The I fund has been rallying for 3 weeks on low volume.  The long term trend of the indicators is rolling over.  The steam is definitely coming out of this rally.  With the RSI back at almost over bought levels, the consolidation is likely to continue.

Risk is high and we are entering some historically dangerous months for the stock market.  We may see some continued upside in the short run but, I’m looking for a more significant consolidation before the final run into early 2018.

Have a great week and please post questions to comments.

Jerry