Recent action in the U.S. stock market has led many traders to question whether the market is in the process of forming an intermediate term top. We've had 5 distribution (professional selling) days in the previous 20 trading days in the S&P 500 index (SPX).
Some market leading stocks like HAIN, AAPL, DDD, SSYS, AMZN, etc. have sold off and displayed relative weakness. The market has been propped up with the guarantee of "free money" from Fed ever since they announced the latest round of QE, even going so far as to leave it open ended.
So why the market weakness? What can the Fed do other than promise QE infinity as it has already done? What is the market discounting that we don't know yet? Or is this just a temporary period of weakness where money managers who are up on the year take profits before they close their books for the year?
A lot of questions there, and unfortunately I don't have any quick and definitive answers. I do find the chart pattern between the initial leg of the 2007 top (left side of the big head & shoulders top) to possibly serve as an eerie comparison to the current market.
The biggest difference that I see right off the top is the 2007 top had a few more distribution days prior to the "false breakout". That said, we could bounce back inside the recent trading range and generate a few more professional liquidation days before the real top is in place.
This is why you must monitor the market and your portfolio holdings on a daily basis.
Here's the left side top of the 2007 top. (Click on chart to enlarge)
And here's the chart of the current market:
Some market leading stocks like HAIN, AAPL, DDD, SSYS, AMZN, etc. have sold off and displayed relative weakness. The market has been propped up with the guarantee of "free money" from Fed ever since they announced the latest round of QE, even going so far as to leave it open ended.
So why the market weakness? What can the Fed do other than promise QE infinity as it has already done? What is the market discounting that we don't know yet? Or is this just a temporary period of weakness where money managers who are up on the year take profits before they close their books for the year?
A lot of questions there, and unfortunately I don't have any quick and definitive answers. I do find the chart pattern between the initial leg of the 2007 top (left side of the big head & shoulders top) to possibly serve as an eerie comparison to the current market.
The biggest difference that I see right off the top is the 2007 top had a few more distribution days prior to the "false breakout". That said, we could bounce back inside the recent trading range and generate a few more professional liquidation days before the real top is in place.
This is why you must monitor the market and your portfolio holdings on a daily basis.
Here's the left side top of the 2007 top. (Click on chart to enlarge)
And here's the chart of the current market:
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