By Nigam Arora
CMT / Courtesy Everett Collection
Two potential scenarios are developing in the U.S. stock market. Both should be considered red alerts by prudent investors.
Let’s explore with the help of a chart. Please click here for an annotated chart of S&P 500 ETF /zigman2/quotes/209901640/composite SPY +0.55% , which tracks the benchmark S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.45% .
Note the following:
• The chart shows that the stock market has undergone a strong rally.
• The chart shows that the price action in the stock market after the breakout is subdued. This is a negative for the stock market.
• The chart shows that the top trendline is indicting a potential resistance zone. This is a negative.
• The relative strength index (RSI) shows that the market is overbought. This is a negative.
• The chart shows that the volume is low. This is a negative.
• The chart shows that if there is a breakout above the top trendline, the stock market may experience a significant acceleration to the upside. This is a positive.
• Stocks of popular large-cap stocks such as Amazon /zigman2/quotes/210331248/composite AMZN +0.40% , Apple /zigman2/quotes/202934861/composite AAPL +0.0000% and Facebook /zigman2/quotes/205064656/composite FB -1.74% are seeing strong momo (momentum) crowd money flows. This is a positive in the very short term.
• Going into the launch of its new streaming service, Disney /zigman2/quotes/203410047/composite DIS -0.73% stock is seeing very strong momo crowd and smart money flows. This is a positive indicator in the very short term.
• Semiconductor stocks are often early indicators. Momo crowd money flows in popular semiconductor stocks such as Intel /zigman2/quotes/203649727/composite INTC +0.54% , AMD /zigman2/quotes/208144392/composite AMD -0.46% , Applied Materials /zigman2/quotes/209393259/composite AMAT +2.21% and Nvidia /zigman2/quotes/200467500/composite NVDA +0.86% are very positive. This is a positive indicator in the very short term.
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