AT40 = 28.0% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 47.4% of stocks are trading above their respective 200DMAs
VIX = 20.0
Short-term Trading Call: neutral (downgrade from cautiously bullish)

Commentary

Buyers are starting to look exhausted.

Based on the topsy-turvy reaction to the minutes from the last meeting of the Federal Reserve, that cloud hanging over the stock market this week was Fed-related anxieties. For example, this thinly veiled warning about rich valuations and high debt levels could reasonably cause some pause…

“Regulatory actions and improved risk management in recent years had put the financial system in a better position to withstand adverse shocks, such as a substantial decline in asset prices, than in the past. However, amid elevated asset valuations and an increased use of debt by nonfinancial corporations, several participants cautioned that imbalances in financial markets may begin to emerge as the economy continued to operate above potential. In this environment, increased use of leverage by nonbank financial institutions might be difficult to detect in a timely manner. It was also noted that the Committee should regularly reassess risks to the financial system and their implications for the economic outlook in light of the potential for changes in regulatory policies over time.”

The initial response to the minutes was one of excitement as the S&P 500 (SPY) quickly raced to its high of the day. Right at 2:30pm Eastern, the sellers stepped in and barely paused to rest until the close.

Sellers in the S&P 500 (SPY) took decisive control of the trading action in the last 90 minutes.

The end result on the daily chart was another failure at the 50-day moving average. With a lower closing low, the S&P 500 confirmed the previous day’s 50DMA failure. Sellers also significantly pushed the index off its intraday high for the third day in a row. Buyers are suddenly looking exhausted.

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