Market Flashing Sell Warning

Last week, the market closed up, but just barely. While the week had made upside progress going into Thursday, Friday sold off on high volume due to Triple Witching and index rebalancing. The market closed near the lows for the week, which was bearish. 

For the week, the Nasdaq Composite gained +0.74%, the S&P rose +1.38%, and the Dow climbed +1.48%. Leading sectors were technology and financials, while there was weakness in utilities, healthcare, and consumer discretionary. 

On Friday, the medical industry was especially hard hit, with some strong relative strength stocks showing big losses (Ex: ALXN lost -8% on Friday and dropped below its 50 EMA, ProSelect stock CPHD lost -5%).

Two weeks ago was a down week made on the down volume that was higher than any week in 2013. The market direction is still bullish under selling pressure, but further weakness could turn the market to the downside and possibly into a correction. 

This is reason to be cautious going forward until the market establishes firmer support and potentially moves to the upside. The market is still above its 50 EMA, and it could decline to the 50 EMA as a normal retracement, providing support for a rebound. 

From a market sentiment standpoint, Investor's Intelligence hit a 5-year high in January (61). Investor's Intelligence measures the % bullish vs bearish investment advisors, and it is a contrary indicator. Peaks in bullish sentiment often precede market declines.

During Quantitative Easing (QE 1-3), investors were able to remain optimistic about a bullish market. But the reality of Fed tapering is now something investors must deal with, along with rising interest rates (at some point). 

There are still concerns about Europe and China's financial health, and the potential for a military confrontation in Ukraine. Add to that the USA's debt problems and middle east problems (Iran and nukes), and there is plenty of reason for investors to lower their risk exposure in the stock market.