Another Distribution Day

The distribution days keep piling up, but the downside action has been muted. The longer the market can levitate as we move toward the anticipated 10 month cycle low date in early January, the greater the likelihood this will remain a sideways consolidation that will lead to continuation breakout in the new year.

However, today the NYSE advance/decline broke down below its trendline for the rally from the March low signalling that all is not well. The breakout in utilities, the decline in financials, the rally in the Dollar and selloff in gold all point to a change in sentiment that begs for a correction. Clearly there is a desire to maintain the extraordinary gains from the March low into the end of the year, but success in this regard could lead to a more vicious downdraft after the new year. That event should it occur would be the next great buying opportunity in my opinion.

A 40 trading day cycle has developed since the March low which projects a high mid-week next week. This will probably be a lower high as it was on July 1. Momentum as measured by the MACD moved lower today suggesting that we will see lower prices this week. I suspect that with TXN selling off after hours we will see lower prices this week followed by a rally into the cycle high next week and then a more pronounced selloff.