This page has been archived and commenting is disabled.

"Major" Equity Index Breaking Down

Tyler Durden's picture




 

Via Dana Lyons' Tumblr,

For all of the longer-term, ancillary red flags and concerns that have materialized in the latter portion of this cyclical bull market (many of which, we have laid out), bulls have had the same response: price is all that matters. It is the appropriate response. Unless one is making prop bets on economic data or has located a Dow Theory Divergence Futures contract, they are relegated to relying on asset prices in determining their investment fate. It appears to us, however, that a great many bulls preaching “price patience” have failed to recognize one thing: there is already evidence of a breakdown in prices. The “stock market” consists of many segments, not just the S&P 500, So it depends where you are looking.

For example, the alluded to Dow Transportation Average and Dow Utilities as well as some other broader indices have already begun to exhibit price breakdown characteristics (i.e., lower highs and lows, drops below key moving averages and support levels, etc.) Today’s Chart Of The Day brings another example of an index potentially breaking down: the NYSE Major Market Index (XMI).

 

The XMI is an index of 20 of some of the largest blue chip industrial stocks in the U.S. market. So it isn’t exactly the broadest index. However, it is influential, in terms of its constituents’ big “name” influence as well as their “weighty” impact on many of the averages. Why are we concerned about the price action in the Major Market Index? Here’s a list of some of the reasons.

  1. The XMI is actually DOWN -2% year-over-year. Therefore, despite the proximity of the popular indices near their all-time highs, there has been at least stealth stagnation for some time in portions of the market.
  2. The XMI was unable to make new highs along with some of the other indices in April and March. In fact its only new high of 2015 came on March 2 – by .019%. This also means that the index is making lower highs.
  3. The XMI has broken down below its post-October UP trendlines, both the steeper one originating at the October lows as well as the shallower one connecting the series of lows since. For now, this is only a short-term development. However, it is a negative price development that could lead to further price deterioration.
  4. The XMI has already failed in tests of the underside of both of the aforementioned broken trendlines. Therefore, it had a shot at turning into a “false breakdown”, and failed that.
  5. The XMI made a new 4.5-month low today. Not only did it close below last week’s low, but it has also closed below the short-term lows from March and April. This places a series of lower lows on the chart. And while it could always reverse course higher again, it now is in a “definitive” downtrend, on a short to intermediate-term basis.

So, will this breakdown lead to further deterioration in price or will be another in a long list of fakeouts occurring over the past 12 months? That is the six-million dollar question. Of course, nobody knows the answer to that. However, these developments in the Major Market Index represent unequivocally negative price action. So for those preaching patience in deploying defensive measures until price breaks down, let this serve notice. The stock “market” is not merely one index – there is already ample evidence of price breakdown taking place.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 06/16/2015 - 09:28 | 6201349 r101958
r101958's picture

How about changing 'cyclical' to 'Fed driven'? 'Cyclical, my @$$!

Tue, 06/16/2015 - 09:29 | 6201352 Keltner Channel Surf
Keltner Channel Surf's picture

Pre-Yellen permabulls expect an opening screamer back toward the 50 DMAs in QQQ and SPY given yesterday's support bounce, so it would take a good bit of volume to break Mon's lows, but if successful it could get ugly.

Tue, 06/16/2015 - 09:44 | 6201395 Keltner Channel Surf
Keltner Channel Surf's picture

Looks like 'opening screamer' got early support, you'd think the OPEX strike-pinners will want 20 or 50 DMA levels by Friday, but news flow could make it dicey.

Tue, 06/16/2015 - 09:30 | 6201354 spastic_colon
spastic_colon's picture

so its breaking down from a year ago....the humanity....how about drawing some lines from 5 years ago

Tue, 06/16/2015 - 09:33 | 6201362 DeadFred
DeadFred's picture

The Fed raises rates on Wednesday and no one is expecting it. The last part of the week could be exciting.

Tue, 06/16/2015 - 09:38 | 6201376 Dr. Engali
Dr. Engali's picture

If they were to raise rates I can guarantee you that there are people who are not only expecting it, but are well positioned to profit from it because they are the same people who gives the fed their marching orders.

Tue, 06/16/2015 - 09:49 | 6201406 jtz5
jtz5's picture

I agree, but somehow the market will see it as a positive...

Tue, 06/16/2015 - 10:51 | 6201661 Consuelo
Consuelo's picture

The only issue with that scenario is that they would have to (likely within 30 days), implement the next asset purchase program.   Perhaps even while raising rates --- wouldn't that be a hoot...??!!!

Tue, 06/16/2015 - 09:36 | 6201368 Dr. Engali
Dr. Engali's picture

The policy tool known as the stock "market" will remain elevated to maintain the illusion of stability for the masses while the real action takes place in the underlying indices. This has been and will remain the standard operating procedure  until TPTB are ready to close the doors on the casino.

Tue, 06/16/2015 - 10:01 | 6201461 NoDebt
NoDebt's picture

I'm waiting for the day that all individual stocks are down but the index is still up.  Mock me on this at your peril.

Tue, 06/16/2015 - 10:23 | 6201559 RexZeedog
RexZeedog's picture

That won't happen until they adjust the index for expectations based on a survey of leading economic indicators...

Tue, 06/16/2015 - 10:23 | 6201560 RexZeedog
RexZeedog's picture

That won't happen until they adjust the index for expectations based on a survey of leading economic indicators...

Tue, 06/16/2015 - 09:37 | 6201370 fxpmtrader
fxpmtrader's picture

Who, except a few silly technicans/TA freaks, care about the XMI breaking down when there is the (CB) managed SnP, DOW and DAX - and/for the sheeple?

Tue, 06/16/2015 - 09:39 | 6201378 buzzsaw99
buzzsaw99's picture

btfxmid

Tue, 06/16/2015 - 09:40 | 6201381 r101958
r101958's picture

PPT at work again. Went from -50 futures to +66 now all within 20 mins.

Tue, 06/16/2015 - 09:40 | 6201384 valley chick
valley chick's picture

I see green shoots...

Tue, 06/16/2015 - 09:41 | 6201386 madbraz
madbraz's picture

and just like every day for the last 3 years, as soon as the guys in london are in and the wall street crew rises at 6AM we get levitation on the DAX, reversal on yields (higher) and ramp-up on the SP500 futures and first few minutes of trading.

 

no words to describe this corrupt sh*tshow.  as long as things they like go up, it's not criminal activity.

Tue, 06/16/2015 - 09:41 | 6201387 SheepDog-One
SheepDog-One's picture

Just throw some more imaginary free money at it, that will always work right?

Tue, 06/16/2015 - 09:44 | 6201394 lehmen_sisters
lehmen_sisters's picture

I see the silver hammer is out of the maintenence shop, didn't see that coming or anything.

Tue, 06/16/2015 - 09:48 | 6201404 JoeTurner
JoeTurner's picture

So instead of QE4 let's try a crazy experiment instead. Suspend all income taxes for 3 years. Raise tariffs on all imported goods by 50% Cut the "defense" budget by 25% and suspend all federal regulations implemented since 2000.

 

WTF, it couldnt be any crazier then what's going on already...

Tue, 06/16/2015 - 09:52 | 6201421 lehmen_sisters
lehmen_sisters's picture

What you are saying makes sense, and that is unnacceptable to the powers that be.

Do NOT follow this link or you will be banned from the site!