It’s tempting to buy into the steep recovery in the S&P 500 E-mini from its overnight low, but if your time horizon is beyond a day trader’s you’d be accepting more risk than you should be comfortable with. Heading toward what should prove to be a pretty market-sensitive FOMC meeting this week,  momentum and internal data show reason to stay square for now.

In early December I wrote on mianalysis.com about how the breadth of demand for S&P 500 components had begun to soften. The advance/decline line and cumulative up volume have gotten worse since. I don’t consider uptrends to be healthy unless they’re supported by strong demand for a large majority of issues.

Meanwhile, the daily chart shows momentum has slowed markedly since the end of October. The indicator at the bottom of the chart shows a fast and slow moving average of the relative strength index that most of you are probably familiar with. Both show a lower high and lower low.

All told, the stock market appears to be on borrowed time before a deeper pullback or more drawn-out consolidation on a near-term basis. This certainly contradicts seasonal strength, but I’d prefer to see better odds before putting capital at risk in this market.

Happy trading, everyone!

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