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Market Lab Report - Premarket Pulse 1/22/18

Major averages rose on mixed volume as they continue to wend their way to new highs, tracking their respective 5-day moving averages. Such periods come to an end either by way of the index moving sideways which allows its 10-day line to catch up, or it undergoes a more substantial correction often piercing or violating its 20-day line. In today's QE-driven markets where stocks are the new bonds, such corrections have been limited to a scant few percent at best.

Futures are roughly flat at the time of this writing as the federal government on Saturday partially shut down for the first time since 2013. While it is a sign of strength that markets are not opening appreciably lower in the face of this news, one should not rule out the somewhat extended major averages pulling back to their respective 10- or 20- day moving averages.

On alert are new lows that have been rising even as the averages make new highs, a bearish divergence. We also had two Hindenburg Omen signals on Thursday and Friday which confirms a new signal. That said, this Omen has a fairly weak track record at best but is yet another bearish indication that boosts the odds of a correction, even if it ends up being a scant few percent as has been typical of this market environment.

Repeating Friday's point, U.S. government shutdowns aren't always bad for stocks though the following slide is misleading since, for example, the NASDAQ Composite fell -3.5% along with other major indices after 9/30/13 before recovering by 10/11/13 then gaining an additional 3.1% by the end of the shutdown. A -3.5% drop in a major index implies some leading stocks, especially the ones with higher betas, could be down by 3-4 times that amount.

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