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Another 'Break' Adds To The Equity Bear Case
For the past 12 months, we have been taking note of a gradual accumulation of ancillary factors suggesting the longer-term outlook for stocks was becoming less attractive. At the same time, the factors most vital in supporting the persistence of the bull market in the intermediate-term continued to be constructive. As we mentioned yesterday, though, that has started to change. Today, we offer another example of an important gauge of stock market health that is beginning to show cracks: the Equal-Weight S&P 500 Index.
As the name implies, the Equal-Weight Index applies an equal weighting to all of the components in the index, regardless of price or market cap. Taking this more democratic view of the index makes it easier to assess how strong the broader “market” really is versus the cap-weighted S&P 500 Index, which may be supported by a relatively small number of its biggest constituents.
The last time we looked at the Equal-Weight Index (by way of the Guggenheim Equal-Weight S&P 500 ETF, ticker RSP), was at the end of March. That post noted a positive development as the ratio of the index versus the cap-weighted S&P 500 SPDR (SPY) had just broken out to an all-time high. This suggested that the broad market was still quite healthy. As today’s Chart Of The Day reveals, however, things have changed.
Despite the Equal-Weight RSP’s new price high in May, there are a number of negative developments on the chart regarding its ratio versus SPY:
- The March breakout in the RSP:SPY ratio was not sustainable. 2 weeks later, the ratio was back below its highs of February-April 2014, June 2014 and February 2015, creating a likely “false breakout”.
- RSP’s May price high was not confirmed by a new high in the RSP:SPY ratio.
- The RSP:SPY ratio has broken its post 2012 UP trendline (of course, we are breaking our own trendline rule of requiring at least 3 points of contact to constitute a valid trendline. However, even if it is not significant, the break is not a positive.)
It is true that this “ratio” breakdown between the Equal-Weight S&P 500 and the cap-weighted index is still based on a 2nd-derivative measure. The true warning sign will be a breakdown of price itself. However, the warnings are getting closer as this ratio is at least based on prices. Thus, we deem it to be more relevant and significant in assessing the market’s prospects than the ancillary concerns pertaining to things like valuation, sentiment, investor allocations, etc. Furthermore, the ratio does have a track record as a reliable gauge of broad market health.
Therefore, with signs of cracks in the Equal-Weight S&P 500′s relative performance, we have more evidence that all is not necessarily as rosy as it may seem with the major averages near all-time highs.
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Just crash, dammit. I've been sitting on cash since 2010, believing all the 'this can't last' headlines. I would like to take what little cash I now have left and buy in.
Waiting for NFLX to crash back to 30 bucks lol
Can Yellen get hold of one of those uber helicopters from the Avengers for Qe4?
Do yourself a favor and buy something that's underpriced and due to rally; like Silver. Stay away from the Stock Market.
Or Swing Trade the Stocks also known as BTFD. Just don't marry them. Cash out with a profit. Churn, baby, churn.
I think that the market is running on inertia and nobody seems to care about the real world where all those market numbers represent reality. The players don't care and the sheep don't understand. So welcome to the casino, pick your favorite game and put your money down......
Nope, now it's gonna crash. Nope, now it's gonna crash. Nope, now it's gonna crash. Nope, now it's gonna crash. Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.Nope, now it's gonna crash. Nope, now it's gonna crash.
Keep it up, bound to be right soon.
I'm still looking threw the article to see where the Tylers claim the market is going to crash, and I just can't seem to find it. Would you mind pointing out for us retards just where Tyler says the crash is imminent?
Only idiots are still trying to use technical analysis in this market. It hasnt worked since QE1 started.
Correction: Using traditional technical analysis to place bearish bets hasn't work because the guys calling the shots know that a breakdown and confirmation of prices based on traditional analysis would create an avalanche of additional selling. But placing bullish bets based on false breakdowns and follow-through of bearish patterns seems to have been working quite well. This probably will continue to work..... until it doesn't! Good luck to anybody trying to guess when the breakdown is not false.
You must mean 'fundamental analysis'. Tech always works, fund is what is junk.
Back when the market was comprised of people buying and selling, technical analysis had merit. But between the CB's & HFTs, it can't reflect the true sentiment of participants. Overwhelming "volume" is HFTs front-running trades.
Let's use a couple of very simple/basic examples:
1. the 50 day moving average in the S&P500 crosed above the 200 day in mid-2009. It briefly crossed below in 2010 and 2011. If you had been long SPY at all times when the 50 day has been above the 200 day, you would have been in this "market" for most of the time since mid-2009.
2. the 200 day starting sloping upwards in mid-2009. If you simply stayed long SPY whenever this slope has been positive, then you would have also been in ths "market" for most of the time since mid-2009, with the exception of a few months in late 2011.
Yup, seems to me that technical analysis still works, regardless of QE1, etc. Of course, that doesn't answere WHY the market has gone up since mid-2009, but technical analysis doesn't care about why.
So you are a retro-testing billionaire? Congrats.
Hmmm. This same technical analysis worked beautifully in 2003 - 2007. Don't hate me bec. I'm right.....and you're wrong.
agreed.
tech analysis is useless because The Gorilla In The Room (The US Government) has used predictably unpredictable tools to destroy true price and risk discovery rendering every asset class completely impossibly impervious to real honest valuation.
at this point there is no reasonable end in sight.
but eventually there will be.
just not now.
I am so fucking mad right now. I've had it.
Yellen and Bernanke and Greenspan (can you spot the pattern yet?) all want to enslave the rest of us, make us all poor and enrich their tiny tribe of banker fiends. Er, friends.
/My time. It is coming
No matter how you weigh the S&P 500, it is headed down...
http://www.globaldeflationnews.com/sp-500-indexelliott-wave-update-for-w...
..
Who cares... It's 'Caitlyn' Jenner now...
I heard she's expecting again!
I wouldn't Fuck it with your dick
Well you could tell Caitlyn to go fuck itself.....and it could....literally.
I'm sorry. There are no such things as "Trans-genders". Only fucked up human beings with enough cash to afford surgery and hormones to make themselves look like another gender.
Their blood identifies them. Take a sample of "Caitlyn's" blood. Send it in for a blind analysis. The technician will come back and tell you, "Yep, this blood came from a dude."
'Nuff 'sed.
Those charts don't mean dick and the fancy trendlines mean fuck all.