Well, I had been looking for strength in stocks in the opening days of 2015, and then a familiar culprit reared its ugly head – Greece. The question now is what’s likely to come next. Will Greece exit the Eurozone? This is one of those times in which the U.S. market is taking cues from the Eurozone. As things stand, I don’t see any sign that the worst is over.
Take a look at Germany’s DAX Index. It hit a ceiling just above 10,000 in early December. That coincided with overbought readings in RSI averages (moving averages on the 14-day relative strength index). Note how low the indicator was during a bounce in the DAX in the second half of December. That’s the hallmark of a rally without any conviction.
Sure enough, the rally failed. And RSI averages are still declining. Until this indicator stabilizes, the market will remain at risk. Putting momentum aside, the price structure shows the sellers have control of this market.
To put things into perspective, there isn’t enough evidence to suggest the selling early this year is a death knell for the cyclical-bull market in equities. My overall stance toward 2015 is cautious due to slowing momentum throughout 2014, but I’m not ready to recommend looking for short candidates.
Good trading, everyone.
