I warned last week about a possible long-term sell signal from my market timing indicator, but I wasn't willing to front run my models as the month hadn’t ended yet. Now it’s happened. A long-term sell signal has been triggered.
As a reminder, this long-term timing indicator buys when the monthly MACD (bottom panel) turns positive and sells when the 14-month RSI of the NYSE Composite (top panel) flashes a negative divergence. Now that the month of January is over. The S&P 500 rose to a marginal closing high on a monthly basis, but the 14-month RSI is exhibiting a lower high, which qualifies as a sell signal.
No model is perfect and this sell signal should be regarded as a warning and not actionable trading advice. I interpret this signal as the warning of a possible major market top in Q1 or Q2. From a tactical perspective, I am inclined to monitor other indicators on different investing dimensions for signs of a tactical tipping point that the bears are taking control of the tape.
The full post can be found here.
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