Our measures of trend have been bouncing back and forth across the zero line this week and are currently negative. If they are still negative on Friday we’ll be raising more cash and/or adding a larger hedge before the week ends. Here are some of the things I’m watching at the moment.
The actively managed short ETF HDGE is currently rising even though a simple short of the S&P 500 Index is trending lower. This indicates that shorting selected stocks is starting to work. This often happens before the general market falls. In addition, mid-term volatility (NYSE:VXZ) is rising as well. This indicates that investors are getting nervous going into the end of the year.
Small cap stocks (ARCA:IWM) broke below the triangle I’ve been watching with an associated break in momentum from traders on Twitter. The negative gap in breadth between small and large cap stocks continues to grow.
While everyone is watching small cap stocks I’m seeing deterioration in large caps under the cover of new highs in the S&P 500 Index. The percent of stocks in SPX above their 200-day moving average isn’t acting healthy. As the rally out of the November 2012 lows has progressed more stocks are being affected by declines in price. In fact, smaller dips in price are causing more stocks to fall (or stay) below their 200-day moving averages. This is a sign that even large caps are seeing selling and it is likely that a rotation to safety is underway. Long time readers know that the 60% level is where I get concerned.
Another sign that money is moving to larger and safer stocks is the ratio between SPX and equal weighted SPX S&P 500 Equal Weighted. When the ratio falls below its 20 week moving average choppy markets often follow.
