Don’t Chase Gains in This Market

The markets are struggling to find some direction at this time. Near-term technical signals have largely turned moderately bearish, with declining Relative Strength. Market breadth also is showing some softness in recent sessions.

 Let’s take a look at the new-high/new-low ratio (NHNL) ratio, an indication of market sentiment. The NYSE NHNL continues to be bullish with the last 14 sessions above the bullish 70% level. Watch to see if the positive sentiment holds. The NHNL on the NASDAQ continues to be relatively soft with 16 of the last 20 sessions below 70%, including the last three straight sessions.

 Breadth on the NASDAQ as indicated by the advance-decline line (A/D) has been below 1.0 in three of the past four sessions, but was above 1.0 for nine straight sessions prior to this. The five-day MA is below 1.0 at 0.80, versus 2.14 the prior week and below the 30-day and 200-day MA of 1.25 and 1.18, respectively.

 The CBOE NASDAQ Volatility Index or VXN — a barometer of near-term market volatility based on NASDAQ 100 index option prices — is generally viewed as a contrarian indicator. A high VXN indicates maximum fear and a possible market bottom. A low VXN indicates reduced apprehension and a possible market top.

 After high readings for the VXN indicating a bottom, readings have moderated. The 5-day VXN to March 29 fell to 17.69, versus 18.31 the prior week, a potential near-term top. The five-day MA is below both the 30-day and 200-day readings of 18.62 and 18.40, respectively.

 The CBOE Volatility Index or VIX is a barometer of near-term market volatility based on the S&P 500 index option prices. The five-day VIX fell to 13.94, versus 14.65 the prior week. It is below the 30-day MA of 14.18, but above the 200-day MA of 12.694. Continued lower readings may suggest a near-term top.

 I expect the markets to consolidate in the near term, until the first quarter earnings season begins in a few weeks. Be careful in this market and do not chase gains.