S&P 500 Weak Sell Signal – But Context Good for Bears

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The bulls have their work cut out for them this week. Over the past seven weeks, this is the second weakest close for the week. It was a neutral week, which suggests bulls taking profits, so we don’t know if it will be enough to entice additional selling. This is also a sell signal on the weekly time frame. Price action below last week’s low is a sell trigger in what could be a leg down.

The longer-term momentum also slowed for the week. The S&P 500 is in line with treasuries, which is our line in the sand when it comes to longer-term risk on and risk off. The international markets continue to lag behind the US markets.

When we dig a little bit below the surface, the market has softened for sure. The Consumer Staples sector has continued to outperform the Consumer Discretion sector, which suggests investors are becoming a little more risk adverse. US market breadth (the number of stocks advancing vs. declining) has also declined over the past week suggesting weakness.

The US equities markets produced more sell signals than buy or continuation signals when it comes to the broader US equities. Many bond asset classes have also surpassed some major highs which suggests at least a trading range rather than falling bond prices. This is good for borrowers, but of course bad for lenders wishing to capitalize on higher interest rates.

For this week we are not looking to add anything new. Of course, even though there are some warnings, it doesn’t mean the S&P 500 is going to fall out of bed. We MUST remember, there is always a bull and bear case…there are a lot of smart people on both sides of the market. The point being, we must stay vigilant, pay attention to what is happening, and not act fearful but follow the plan according to market action and not prediction. Have a great week!

Warm regards,

Adam Straseske, CMT

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