Short-term warnings starting to crop up; Could be important into FOMC

Near-term and intermediate-term technical trends remain bullish for US Equities, but momentum has now grown quite stretched heading into this week’s FOMC meeting. The combination of overbought conditions coupled with a near completion of DeMark-based exhaustion signals points to a possible stalling out post this week’s likely Fed rate cut (as shown by Fed Fund futures). While the intermediate-term trends and momentum remain bullish, I don’t find the near-term risk/reward appealing this week with SPX over 6600.  Market breadth has declined in the short run (last two weeks), and I suspect that some minor consolidation could prove likely starting mid-week.    Given how stretched SPX has become lately, I feel that any daily close under the 5-day rising moving average (SPX-6566) likely could coincide with 3-5 days of weakness. At present, DXY and Treasury yields remain downward sloping, precious and industrial metals remain in short-term uptrends, along with Cryptocurrencies. Global developed market and Emerging market Equities remain in bullish uptrends.

Overall, my short-term concerns have to do with the following:

  1. Near-term overbought conditions - 2-hour charts show RSI (Relative Strength Index) having reached levels which coincided with pullbacks this year on most occasions (8/13, 7/28, 5/16, 1/23, and 2/19) while daily RSI is now approaching 70.
  2. DeMark-related exhaustion is now close to completion on daily charts along with 240-minute charts (and might be close to signaling exhaustion on 60, 120-minute charts into Wednesday on a bit more strength). These are normally the timeframes I utilize personally to identify a possible confluence for market peaks and troughs of a short-term nature. However, given that weekly DeMark TD Sequential and/or TD Combo signals on weekly charts likely won’t show TD Countdown signals in unison (both $SPX and $QQQ) for another 2-4 weeks, I’m skeptical that any mild setback this week will prove all that important.
  3. Market breadth has waned in the last two weeks and generally has been lower since July of this year. While a pick-up in breadth did occur from early August into late August, that has since waned in the last week. (Note, despite today’s +0.47% $SPX gain, seven out of 11 sectors were lower on the day (based on the 11 Equal-weighted ETFs that make up $SPX.)
  4. SPX rally from 9/2 has nearly exactly equaled the rally which began around this same time in August (8/1-8/15). This recent leg higher from 9/2 would be equal in points gained to the rally from 8/1 at around 6630 in $SPX.
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