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Are we at a market top? The signs are flashing yellow, but not red

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Tracy Knudsen, senior vice president for Lowry, came by the NYSE to say hello Monday. Lowry is the oldest technical analysis service in the U.S. (founded in 1938), and they, along with Ned Davis and Dorsey Wright, produce some of the best technical analysis commentary out there.

Her main message: don't worry, at least not yet.

The big topic among traders over the weekend was the fact that we have broken decisively out of a trading range for the Dow and the S&P 500, but several important indicators are lagging, specifically the Dow Transports (down more than 5 percent from its historic closing high on Dec. 29) and the Dow Utilities, also down more than 5 percent.

The fact that the Dow Industrials hit a new high when the Dow Transports are quite a ways from a new high is, of course, a non-confirmation under Dow Theory, which holds that for a new uptrend to be confirmed the Dow Transports must also make a new high.

Why is Knudsen not worried yet? Because, she says, signs of a "classic" market top are not yet evident. Specifically:

1) No sign of an increase in stock for sale (selling pressure)

2) No sign that demand (buying interest) for stocks is dramatically decreasing

3) the advance/decline line is not deteriorating

However, there are signs that the market is "aging." She's specifically concerned that the major indices are at new highs and yet there are not many new highs in individual stocks, a sign the rally is narrowing.

In a similar vein, she notes that 30 percent of small caps are down 20 percent or more from their 52-week high.

I agree with this analysis, my one concern is the bond market. Once again, we are seeing a move up in yields—8 basis points on the 10-year—on no news. On Friday, down 8 basis points, today up 8 basis points. Worrisome.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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