With the month of May now in the books, it’s time to review the monthly charts. Here we’ll take a look at the DOW JONES. What we can observe is that relative strength (RSI5) is very high (i.e. strong uptrend), but rather overbought and displaying slight negative divergence. Over the past 20 years similarly high RSI5 readings lead shorter term (few months) to lower prices, but longer term (many months ) to higher prices.
The Money Flow Index (MFI14) shows possible negative divergence: less money is flowing into the market at current levels compared to 2014. We do need to see the MFI14 turn down to confirm this divergence. This is also evidenced by the ever decreasing volume levels. But, that hasn’t been a problem for this Bull, as in essence 1M shares at $20,000 is the same amount of money being put into the market as 2M shares at $10,000 and liquidity is all that matters. Nonetheless, the MFI14 starts to suggest liquidity is tapering off. On these time frames (months) it will take a while to make itself heard.
Lastly, the MACD is making a higher high, suggesting momentum is still strong, which is also evidenced by the Bollinger Bands: price is at the upper band. It has strength.
Hence, the overall conclusion of this chart is that we can expect short term weakness coming “soon” (soon between parentheses as it is relative because this is a monthly chart), but longer term we can expect higher price. Eventually the lack of liquidity will catch up and usher in a larger correction.