Stock markets have started the new year by going down.
We already warned last week that the start of 2014 was likely to be disappointing and that appears to be panning out.
We are now entering a lunar red period, so I think the weakness in stocks is going to continue a while longer.
Here is the chart for the Nasdaq (click for larger image):
The market bumped into the expected ceiling near 4200, but failed to break above it.
My Earl indicator turned down in the final days of 2013, and the slower Earl2 appears to be making another very weak peak.
Whenever the Earl2 makes a series of very weak peaks after a lengthy bull run, it usually marks the start of a correction.
Meanwhile we see the MoM indicator has entered the very optimistic +8 zone, which usually ends with a decline or a period of sideways movement.
So there are currently no good reasons to buy based on any of my indicators.
The 4050 level is an important support line, and if the market drops below that then it will probably go down towards 3800 fairly quickly.
I hope to get my new year forecasts ready and out this week. Preparing the graphics always takes more time than expected.
So stay tuned,
Danny. Please explain if you still consider the Earl and Earl2 bearish divergences to be in effect.
In the Earl (blue line) we can see that bearish divergence situation is somewhat improved by the latest rally, but latest peak is still well below the peaks of October and July. So the new highs are not confirmed by the indicator.
The Earl2 (Orange line) is barely getting above the zero line since November. Here you can see that the subsequent peaks have been getting steadily weaker, so that’s a very large bearish divergence.
That doesn’t guarantee that a big decline is coming, but it shows a market that needs to breathe out before it can breathe in again.