The US equity market struggled last week but the S&P 500 held the rising 200-day MA once again, but as BofAML notes, the much broader-based NYSE stalled at 200-day MA resistance last week. The NYSE has a potential head and shoulders top as well as a breakdown for the NYSE stocks only advance-decline line through the March low. Similar to the NYSE Comp, the Russell 2000 also shows a potential head and shoulders top with a breadth breakdown a big risk to 1200 support...
The S&P 500, having broken below its 200-day moving average again, has joined The Dow Transports, Dow Industrials, and Russell 2000 (small caps) in negative territory year-to-date...
But but but... the smart men on TV said a) rate-hikes are priced-in, 2) rate-hikes are bullisher for stocks than rate-cuts (why would The Fed raise rates if everything was not awesome?), and thirdly) buy the dip! It appears The Fed knows it is going to need some ammo sooner rather than later... But it's not just the mega-caps, The Russell 2000 (small caps) has tumbled back into the red year-to-date...
There are five charts that I think speak to the good prospects for bearishness.
"In the past 12 months investors traded $18.2 trillion worth of ETF shares. For perspective, that means the amount of dollars exchanging hands through ETFs is now more than the U.S. gross domestic product, which stands at $17.4 trillion," Bloomberg reports. Or, put differently, the financial apocalypse draws near.
This series reached an extremely skewed -462 yesterday (18 New Highs minus 480 New Lows). If this reading gets any worse, it will be one indication that the uptrend since 2009 is in jeopardy.
The S&P 500 and Russell 2000 are very close to joining the Dow Industrials and Transports in negative territory for the year. The S&P 500, which has fallen 5 straight days for the first time since January, is now back below its 200DMA, having swung from euphoric "Greece is fixed" exuberant record highs in just a week of rising volume. The Dow is the furthest below its 200DMA since October's Jim Bullard-rescued dump. Treasury yields are plunging.
... of the 6,657 days since 1965 when the S&P 500 closed up, Friday had the 6,627th worst breadth... the last 12 times this situation occurred, the S&P 500 was lower 3 weeks later each time by an average of 4%. Also of note, for what it is worth, this is the closest to a 52-week high the S&P 500 has ever been on any of the occurrences.
The power, if not necessarily the Truth, resides primarily with the bulls right now or at least it does in certain parts of the market. The NASDAQ broke out last week to new highs but the S&P 500 and even the more speculative Russell 2000 did not. The market’s advance continues to narrow, to concentrate among fewer and fewer names. Bulls will tell you that this is just a pause and the advance will broaden out. And if enough people believe that and there isn’t any convincing reason to sell, they might be right for a while. But at some point the rose colored glasses will come off and someone might wonder aloud why Celgene paid $7 billion for a company with trailing 12 month revenue of $4.5 million. Someone might wonder why Netflix is worth $48 billion and CBS is only worth $27 billion with more than twice the revenue, better margins, a higher ROE and the ability to produce positive cash flow. Until then it’s just a dream within a dream and somebody keeps hitting snooze on the alarm clock.
Having now passed the anniversary of the “rising dollar”, it is interesting to see the related and continued effects on the stock bubble(s). As should be obvious by now, stock buybacks, funded via corporate bonds and loosely categorized C&I loans, are responsible for the post-QE3 nearly uninterrupted rise. Repurchases are forming a separate “liquidity” conduit, indirect leverage if you will, which has already started to fray. Various broader “market” indices have diverged, starting with the Russell 2000 in early 2014 (with the economic slowdown that was supposed to be an anomaly of weather). At the very least it might imply that the central bank paradigm that lasted since the middle of 2012 has greatly eroded or even ended.