Toppy Technicals?

04/28/2017 2:49 am EST

Focus: STRATEGIES

Dennis Slothower

Chairman and CIO, Alpine Capital Management

The financial powers do their best to try and support the stock market going into April when income taxes are due, observes Dennis Slothower, editor of Wall Street Underground.

After this date, going towards the month of May, the weakest month of year historically, investors should be looking to unload, particularly if the President’s fiscal policies are stalled and the Fed is still raising interest rates.

I have been warning investors of the dangers of a rising interest rate environment. The Fed’s tightening has caused banks to tighten lending significantly.

Data from the Federal Reserve shows the $2 trillion market for commercial and industrial loans peaked last December, when the Fed raised interest rates for the second time with corporate lending now having ground to a halt.

One tool I have found over the years to be very important in the long term is the monthly stochastics, especially of the Russell 2000 small cap index. Notice how toppy the monthly stochastic has become with %K at 93 and %D 92 and rolling over.

chart

Also, notice as we go into the month of April how the monthly MACD oscillator has peaked and is rolling over and is trending below its five-month period moving average.

This is bearish. The Relative Strength Index (RSI) is also rolling over. From a technical perspective these are topping patterns and suggest vulnerability for the stock market.

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