Investors might want to be fearful of the lack of fear
The continued rally in the S&P 500 took it to historic levels yesterday, as the index hit 2000 for the first time ever. With these key markets above their 200MA and the Advance/Decline line near all time highs, the trend is up and it looks like investors have little to fear at this time.
Speaking of fear, the above 3-pack highlights that “Fear Levels” are at/near support as these key markets are up against channel resistance.
It appears that the only thing investors have to fear at this time, could be the lack of fear going forward.
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Cotton…Down 70% & Few Bulls…Could A Bounce Be Near?
Cotton has had a rough go of it the past few years. Its down over 70% since 2011 and has had a rough go of it this year, down 30% in 2014.
The decline has taken in down to a point that dual support could be in play highlighted in the circle above. The decline has created rare sentiment extremes, as only 17% of investors are bullish at this time.
This creates and interesting Pattern/Sentiment situation for aggressive investors!
Russell 2000 Declined 23% and 53% last two times this took place…its back!
When it comes to “Monthly Momentum” it can take a while to become very overbought or oversold. The Russell 2000 monthly momentum reached lofty levels back in 1998 & 2007. Once momentum support broke the Russell experienced declines ranging from 23% to 53%.
On the opposite front, when monthly momentum reached oversold levels back in 2003 & 2009, strong rallies took place (100%+).
The rally off the 2009 lows now has monthly momentum higher than it was in 2007 and near the 1998 levels. Recently momentum is turning down and breaking support as the Russell is near a 14-year resistance line.
When lofty monthly momentum broke support in the past, small caps struggled to make much more upward progress in the following years.
Is a slippery slope ahead for small caps? Will it be different this time? Stay tuned, this could be very important for small caps!!!
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Industrials…Diverging like 2007 & 2011, As Trend Remains Up!
Some times diverging momentum can be a sign of a short-term high in the markets. The Industrials ETF XLI experienced falling momentum while prices were moving higher back in 2007 & 2011 at (1), which resulted in lower prices in months to come, once support and its 200MA was broken to the downside.
At this time the bullish trend in XLI is in place, as it remains above support off the 2009 lows and above its 200MA line.
Of late, a divergence is taking place as momentum is falling while XLI remians above support at (2). As mentioned before, the trend remains up for XLI. With momentum heading down recently, it becomes important that XLI remains above support and its 200MA!