Caution is the name of the game at this point. The most sensitive version of the MAMO indicator is turning bearish. This is a HUGE warning sign. I am still very bullish this market for the long-term trend but it feels like the market wants to auction lower. We went from caution tape to cautiously bullish and now just plain cautious.
To sum things up, we have:
- Sovereign fears reentering the market (although nothing new)
- Momentum stocks weakening
- Respected indicators turning bearish
If we don’t bounce early in Tuesday’s session, we will trend lower for the rest of the week. Scenario 1: We correct and weak hands are shaken out and long-term buyers are found — new healthy highs right around the corner. Scenario 2: We pivot higher and have very limited upside above previous highs (I will turn very bearish at this point). This is the throw-over top scenario@MktAnthropology has written about in which the correction is delayed and deeper. Bottom line is the bull market is still in tact but it will be rough waters for a little while longer.
MAMO Chart (blue line crossing zero-line is bearish):