The stocks that got us to these lofty levels (china stocks, solar stocks, select tech, etc.) are rolling over here -even the small caps closed down on Friday. In short, high-beta, high-growth is in trouble.
When this happens, there are 3 possible outcomes:
1. A pause that refreshes and high-beta takes off again
2. A rotation into low-beta, low-volatility, high-dividend boring stuff (like this Spring)
3. A decline where the high-beta roll pulls everything else down with it (like the June and August dips)
We're clearly overbought. $USHL5 just spiked 5000 - which if you follow Alexander Elder is a big red flag and often a leading indicator. The percentage of stocks over the 50-day SMA is over 80% (which is high, but not extreme). It doesn't really matter which metric you chose (RSI, MACD, CCI, stochastics, etc.), they're all extended.
So, where are we going next? I have no idea, but I do know what to watch: SPLV.
SPLV is busting out of a huge consolidation and could play catch up to SPHB which has enjoyed a good romp for the past few months. If we take out this week's low in SPLV, all bets are off. But right now, it looks like all systems go for SPLV and I'll be buying dips.
If my interpretation of the charts is correct, then scenario #2 above is the correct one.
Here's a chart of SPLV and you can decide for yourself:
For more charts and to read a disclaimer, please see my public chart list on stockcharts.com...
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