Earnings will flood in from this week on, offering traders and investors an opportunity to evaluate the historic highs and short-term overbought conditions in European and US equities, explains Ian Murphy of MurphyTrading.com.

equities

Index heavy weights in the US continued to separate from the rest of the market on Friday creating one of the largest divergences of recent years (pink dashed lines). Composite Help is making lower highs with each tick up in the market and Pessimism is above the warning level of 10%. It will take very little for this market to fall sharply. The story of the camel and the straw springs to mind, and the straw might be hidden in an earnings announcement.

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Meanwhile, in addition to the Help strategy positions mentioned last Wednesday, two weekly trend following positions have also been opened. Last Tuesday, 200 shares in Lumentum Holdings (LITE) were purchased and the stop is currently sitting at $86.95. The trade in Evoqua Water (AQUA) is open since March 12 and the stop was moved up to the point of entry for 400 shares at $26.38. The stops on these are tighter than usual because of the overbought conditions in the market. I am not prepared to give anything up on AQUA and LITE needs to take off from here or I am out.

Learn more about Ian Murphy at MurphyTrading.com.