Turning to the markets, tensions with North Korea and better-than expected economic data out of China are in focus this morning. The Dow, S&P 500 and Nasdaq indices are coming off three straight losing sessions and start the day at two month lows. And with the Dow and S&P having put in a “lower low” on the charts, it appears that a downtrend is developing. Thus, the price action in the near-term takes on added importance this week.

Now let’s move on to an objective review the key market models and indicators. To review, the primary goal of this exercise is to remove any preconceived, subjective notions about the markets and ensure that I stay in line what “is” really happening in the market. So, let’s get started.

The State of the Trend

We start each week with a look at the “state of the trend.” These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.

Executive Summary

  • The short-term Trend Model has turned negative as price is below the moving average, which itself is moving lower. This is the definition of a downtrend. 
  • The short-term Channel Breakout System has flashed a sell signal. But with the market now in a mean reverting mode, this signal could be reversed with a modest rebound. 
  • The intermediate-term Trend Model has also flipped to negative. A close above 2360 would reverse the sell signal. 
  • The intermediate-term Channel Breakout System remains positive. However a close below 2320(ish) would turn this indicator red as well. 
  • The long-term Trend Model remains solidly positive. 
  • The Cycle Composite has turned positive and suggests higher prices for the next three weeks. 
  • The Trading Mode models now suggest stocks are in a mean reverting mode. We will be on the lookout for these models to flip to the “trending lower” mode.

    • The State of Internal Momentum

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