U.S. Dollar And Rates Issue A Warning

 | Feb 09, 2021 05:09AM ET

As discussed in Bull Mania, the signs of market exuberance did not diminish during the recent correction. With the market well ahead of fundamentals, as money continues to chase performance, the “risk” remains elevated.

In this past weekend’s newsletter, “Wall Street Wins Again,” I stated:

“[The expected rally] was indeed the case as the markets successfully tested and held the 50-dma (red dashed line.) Despite the fact money flows remained weak, as shown in the chart below, the market did manage to regain previous highs.”

“While the money flow ‘buy signal’ will likely trigger next week, the market is already trading 2-standard deviations above the 40-dma. Such suggests that the upside may be more limited over the next couple of weeks.”

The more critical point in the newsletter concerning the market was the breakdown in correlations between the market and its underlying constituents. To wit:

“Currently, the number of stocks outperforming the market is dropping sharply. Such is notable because the correlation among stocks in the S&P 500 plunged to the lowest level in over a year.’ – Sentimentrader