DOW & VIX Update

US equities continued higher once again yesterday with both the Russell 2000 and 3000 ending higher on the day, the former at 81.23 and the latter at 78.94, and as a result making this the fourth straight day of gains for these indices.  Moving to the Dow this also closed higher at 12233.15, up 71.52 on the day and making this the 7th straight day of gains with no technical signals at present that the current bullish momentum is likely to slow in the short term. However, volume on the last three days trading has been below average which could be a worrying signal and, as such, we need to exercise some caution moving forward in the medium term.  The 100 day average continues to provide excellent support and with the 200 moving average also inclining upwards the longer term outlook remains positive.  However, the current risk on sentiment, which is clearly evident, is curious to say the least given the return to strength of commodities coupled with the underlying fundamentals for the US economies which remain fragile, if not bleak.  Indeed, even Friday’s non farm payroll figures, which were dire to say the least, failed to dent investor appetite for equities.  As a result each day of gains makes the current rally more unstable and, as such, I am now looking for a sharp reversal in the not too distant future and the first signal may well be from our trusted guide of volume on the DOW.  Indeed, we may already be seeing the start of this and any narrow spread up candle with excessive or, well above average volume, could provide us with an early warning signal.  Finally, of course, our other trusted guide the VIX, continues to slide lower as complacency remains in the ascendency with this index closing at 15.81.  Any further move lower towards single figures will also give us a strong early warning signal of an impending change of sentiment for equities.