Oil Compressing

US Equities shrugged off the political theater on Capitol Hill, the trade war with China, and assorted rebellions on multiple continents. Three out of the four key US equity indexes hit new all-time highs up another .75% on average, while small caps (IWM) still lag by a wide margin.

The newest riots underway are in Chile. These started soon after the local government announced a 20-cent increase in subway fares in Santiago (its capitol). This was a final straw after a string of policy changes impacting many people already under intense financial pressure. Their currency has dropped to 16-year low versus the dollar and could fall much further.

This week’s highlights are:

  • Risk Gauges remain 100% bullish
  • Volume patterns improved showing good accumulation
  • Market Internals are showing divergences otherwise known as the Hindenburg Omen
  • Market Sentiment measures are reaching short-term frothy levels
  • Semi’s continuing to lead by a wide margin
  • Retail and Transportation continue to lag
  • Oil continues to compress and moved into an accumulation phase

Price action is strong, but underneath the hood market internals tell a different story, showing a lack of participation. When this occurs at new highs it’s called the Hindenburg Omen. The Hindenburg airship blew up in 1937, I will leave the rest to your imagination.

Our Alpha Rotation trading models uses market internals to measure the risks of negative price action leading to a market decline. The combination of negative price action and weak internals will lead to sell signals. Last week these risks were high, and the pullback in IWM led to some profit taking there.

The SPY and QQQ models, on the other hand, remained bullish as these markets continued higher without any sign of weak price action.st Wishes for your trading!