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Warning Flags Fly, But Stock Top Unconfirmed

NEW YORK ( TheStreet) -- Dow transports and Russell 2000 were the leaders to new all time highs in mid-March. Since then these two have been the laggards. The Dow industrials and S&P 500 performed like a sling-shot to all time highs on April 11 with the Nasdaq setting a multi-year high the same day. Since then the Dow industrials have held up the best among the five, but Dow utilities is now the best performer year to date with a multi-year high set on April 15.

This configuration is a flight to defense in the equities market, a negative divergence overall.

The other U.S. capital markets also provide warning flags for U.S. equities.

There is no bond bubble as the yield on U.S. Treasury 10-year has declined on a "flight to quality" out of risky assets which includes U.S. stocks in general. This yield moved above my annual pivot at 1.981% to 2.087% into March 8 then began to decline before equities peaked. This yield could decline to my semiannual risky level at 1.413%.

The gold bubble ended in 2011 and the precious metal is now below its 200-week simple moving average at $1435.3 after being above that key support since 2002. It appears that investors do not need a hedge against inflation or deflation, and with the stronger dollar, the idea that gold is a currency of last resort is off the table for now. Given the weakness in gold and other commodities the basic materials sector has become 15.6% undervalued. Only 18 stocks in this sector of 418 stocks have buy ratings and with 162 rated sell, this sector is rated underweight in my judgment.

The crude oil bubble popped in 2008 and with huge supplies of oil now in storage a trend below its 200-week simple moving average at $87.45 appears possible which would indicate risk to my quarterly value level at $79.66. Crude oil has been trading back and forth around its 200-week SMA since mid-2009 and the oils-energy sector is now 1.5% undervalued. This sector consists of 565 stocks with only 28 rated buy and with 134 rated sell, so this sector is also rated underweight.
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Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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