Equity markets continue to defy our call for no end-of-year rally as equity investors rush to invest idle cash and not miss out on the positive feedback loop of higher prices. SPX has broken the mid-Sept high at 2,020 leaving behind a series of higher highs and higher lows; the definition of an uptrend. Price is the ultimate arbiter but we cannot ignore other signals if we want to be successful in forecasting price.

Inflation expectations (chart) bounced after testing the January low but are falling again and may get a chance to re-test the lows during the next pullback in equities. A break to new lows would be very bearish for equities.

A close by the yield on the 10 year treasury (TNX) below the February low at 16.75 would be deflationary and bearish equities.

The US Dollar may have printed the expected double bottom during the previous week giving us the cycle low we’ve been waiting on. A rising Dollar is deflationary which is bearish-equities.

Small Caps have been underperforming during the fall rally and have not exceeded their Sept high. Relative performance (vs. SPX) is breaking down from what may be described as a bearish head-and-shoulders pattern. A bull market without leadership from small caps should be considered suspect.

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Ed Carlson, author of George Lindsay and the Art of Technical Analysis, and his new book, George Lindsay's An Aid to Timing is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.

© 2015 Copyright Ed Carlson - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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