Change in the Wind? Posted by Coolhand

In yesterday's post, I said that there wasn't much to read into the mixed action to start the week. I felt that the indicators as they were yesterday did not appear to be particularly bearish and that I though we might go sideways with an upside bias as the week progressed. Then Tuesday happened.

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I am sure it has not escaped anyone's attention that the DWCPF is struggling. It appeared that price had successfully tested support and that since the S&P actually advanced on Monday, I was not expecting support to fail. Not with NAAIM leaning bullish. But anything is possible in this market. It would appear the DWCPF had a small bear flag in play. Price has now closed below support at the 50 dma. The S&P is not having the problems the DWCPF is having. While it did close lower, it didn't lose nearly as much and price remains above the 50 dma. And this index only a week ago posted a new all-time high. Momentum is turned down on both charts.

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Cumulative breadth fell and is now bearish. That has usually meant a turn higher is not far off.

While bears got the better of the bulls today, I still have no reason to get particularly bearish (all things considered). Obviously, small caps are under attack, while larger caps are generally holding up. Perhaps small caps (S fund) is providing a buying opportunity for those who are positioned to take advantage, but that doesn't answer the question of how long small caps will remain under pressure. I am not sure of the answer given current market dynamics. However, if inflation takes hold, it would stand to reason that small caps would feel the heat. It may be time to think about diversification until the playing field gets a bit more clear.

I remain modestly bullish, but am watching carefully.