The 1,000 lb gorilla in the room remains the Fed. Can the US central bank really end QE without material consequences across asset markets? Place your bets. There is not much evidence of the ‘worry gene’ prevalent in financial media, which have a vested interest in delivering positive, reassuring news.

David Fuller's view

Here is Tim Price's letter.

Wall Street’s powerful bull market climbed a ‘wall of worry’ about many things for most of the last five years.  That is fairly typical of these cycles. 

However, crowd sentiment became increasing bullish in 4Q 2013 as the S&P 500 Index (weekly & daily) notched up a 30% gain for the year.  Sentiment wobbled when we had the first decline for January in five years.  That was a warning but sentiment recovered when most indices rallied to new highs in February, led by the tech-heavy Nasdaq Composite Index (weekly & daily). 

Nasdaq often leads the big trends and after touching a new high in early March, it underperformed for the rest of the month.  Furthermore, it could not test its highs in early April when the S&P and the Dow Jones Industrial Average (weekly & daily) moved to new all-time highs.  However, the Dow Jones Transportation Index (weekly & daily) touched a new high just before the DJIA, registering a Dow Theory (named after Charles Dow about 130 years ago) buy signal which received some media attention. 

Today, however, the DJIA and SPX shown above registered clear downside key day reversals, suggesting failed upside breaks.  Even more importantly, the CCMP fell 2.6% today, recording its first lower high for a very long time.  It also closed slightly beneath its March low. 

The weekly uptrends are still intact and above their 200-day MAs, although SPX and CCMP have been somewhat overextended for some time and the latter is now showing a loss of upside momentum.  All this suggests that a correction is beginning and it is now for the bulls to prove otherwise, by pushing these indices back to new closing highs.

Next week will be interesting.