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EA Risk Barometer Signals Deceleration Ahead - Morning Market Squeeze

Key Tactical Takeaways:

> Our proprietary EA Risk Barometer raised a Level 2 caution signal on Wednesday. Essentially, this can best be described as an indication that the aggressive S&P 500 rally of late is nearing an encounter with ... that will transpire either through ...


> With cyclicals moving into the Weakening quadrant, Industrials moving into the Lagging quadrant, tech Leadership seemingly reaching a tactical peak, utilities only showing improvement within the Lagging quadrant, and staples firmly Lagging, ... signs of defensive sector rotation are showing at this time.


> 10-Yr futures are under small pressure this morning, after Wednesday's rally below 0.66% turned the near-term technicals .... A critical range of ... is now in play ahead of Friday's jobs report.


> Both the US$ Index and VIX face important tests of bearish NT (near-term) Trend Stops at ... and ..., respectively.


Some Quick Thoughts:

Last week, we highlighted the fact that the S&P's 08/26 close above a near-term price channel had provided a platform on which buying could continue to beget more buying. Since that breakout, the S&P cash index has tacked on another 2.9%, causing momentum conditions stretch to levels that, simply put, have not occurred very often over the past several decades. I'm still under some time restraints due to a personal issue I am handling at the moment, so I have not been able to test the forward performance following such extremes. However, a quick glance at historical charts suggests that, when free from divergence (which is currently the case), such momentum extremes typically precede ... My goal is to perform this backtest this afternoon and post the results on the extractmarketanalytics.com blog shortly after.


You'll recall that on Monday, the title of this daily report was "Tech and Utilities Set To Do Battle." With Utilities leading Wednesday's rally with a 3.11% gain and tech only rallying by 0.89%, it's clear that the anticipated rebound in utilities and profit taking in tech has begun. Relatively speaking, though, tech's very recent lag vs. utilities is still a ...


Bottom Line: Even though the ridiculous surge in upside call buying of late reeks of retail euphoria, the Fed's bubble-inducing commitment and the White House's pre-election campaign to fluff-up market psychology are monumental forces that have us favoring a scenario where...


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