Technical Tuesdays: Grinding Down

The bull market's summer swoon is starting pretty much right on schedule as price slips and slides sideways producing a grinding down of momentum. As the accompanying chart illustrates*, two key momentum indicators - MACD and Rate of Change (second and third lines) - portray the grinding down process with the MACD lines on the verge of a crossover while the Rate of Change has gone flat for some time. The bullish saving grace is the fact that no Mega Trend reversal (top lines) are in place. So, what lies ahead is your garden variety summer pause that either (a) refreshes or (b) sets the stage for a trend reversal (in this case, from bull to bear).

Investment Strategy Implications

The Rate of Change is the first alert that something different is about to happen. The MACD crossover is the confirming signal. Seasonal factors (see prior posts below) suggest such a crossover is very likely to happen. The net result, however, cannot be assumed to be more than a pullback (approx. 5%) or correction (>10%). That said, however, such outcomes fit perfectly into the rolling top that bull markets form. But that's a story for another day. Until then, the best investment advice seems to be: pick out a good book, go to the beach, and (for the most part) see you in September.

*click image to enlarge.

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Technical Tuesdays is a product of Blue Marble Research Advisory and illustrates selected elements of market intelligence analysis. Market intelligence analysis - along with fundamental and thematic analyses - form the three-legged stool of the analytical approach employed by Blue Marble Research Advisory.

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