Market’s Weekly Bill of Health
The Intermediate Term Picture Downgraded Another Notch
With the market’s decline over the past week our longer term survey (200 day moving average evaluation) worsened with the long term trend of the market close to being downgraded another notch from neutral-bullish to neutral-bearish. Our more sensitive MATA survey fell meaningful from the prior week which downgraded the intermediate market outlook from neutral-bearish to outright bearish.
Over the course of the current economic cycle I have written numerous times about the theme of “the tale of two economies”. In short, large companies have enjoyed a vigorous recovery, record profit margins and all time high nominal profits. But their US domestic small business brethren have seen nothing of the sort.
If you are going to compete you are going to get knocked around from time to time. It is not what happens to us that determines our results, how we respond to situations is the most important thing. So, instead of panicking after a sharp pullback let’s try to put things in the proper perspective.
As everyone is well aware, Europe is an absolute mess and while the U.S. stock market has been remarkably resilient, it has finally succumbed to news across the Atlantic and is now the final region to experience a decline.
Both the Dow Industrial Average and the Dow Transport Average are breaking down. Tuesday the Dow Industrials closed below 12700 support, and today the Transports are finally breaking support after holding for three months above 5050.
Market’s Weekly Bill of Health
The Long Term Picture Downgraded One Notch
With the market’s decline over the past week our longer term survey (200 day moving average evaluation) worsened as it broke the bullish threshold with the long term trend of the market downgraded to neutral-bullish. Our more sensitive MATA survey also slipped two points falling to low neutral-bearish territory and at risk of falling into bearish category (< 40%).
Today's big news... We had an intermediate-term neutral signal generated on our Thrust/Trend Model for the SPX. The 20-EMA crossed below the 50-EMA today which was the trigger. It was not a sell signal because the 50-EMA remains above the 200-EMA which means we are technically in a long-term bull market still. You don't want to go on a sell signal in the midst of a bull market.
Just 58% of stocks in the S&P 500 are now in sound position technically. That reading was off 7% last week and down a whopping 26% from its recent high. The smaller cap readings are also weakening and currently only 53% of small cap stocks are either advancing or basing.
With the decline off the April highs the U.S. stock market has reached intermediate oversold levels which typically see a rally ensue. Failure to rally from here or a weak rally that sputters will indicate how weak the equity markets are and will likely lead to a new leg lower in the markets with a test of the 200 day moving average as a potential target.
There has been a lot of talk about French and Greek elections, Spanish Banks, and austerity versus growth in the headlines this week. It really might have been too much for you to filter on your own, so here I wanted to summarize some of the macro drivers that steered the markets.
