Special Bulletin: September 27, 2019

Technical “internals” have weakened while headline risk has increased. 

The technical condition of the stock market has deteriorated just enough recently to push our Current Market Outlook to “Uptrend Under Pressure” with a “yellow” light. Our “Core Four” internal indicators show two green and two yellow signals. Net result: the uptrend is under pressure.

With an increasing number of Distribution Days on the S&P500 and the Nasdaq on top of severe price damage to many of this years leading growth stocks, the stock markets uptrend is under mounting pressure. While no one knows how long this pause may last, or if it will evolve into a more serious correction in the weeks ahead, it is important to note that not all of the internals are weakening. Since we do not engage in the practice of making predictions, we will let the market reveal its chosen path one day at a time. However, based on our experience and the history of the math of the market (the technical internals), it does not look as though the market is setting up for a major bear market phase. At least not yet. The internals are suggesting that any additional pullback may be limited in its depth and length.

New uncertainties regarding the Democrats impeachment inquiry and the Trump administrations consideration of limits on investment capital flowing into China have now been added to the trade war and Fed interest rate concerns already hanging over the market. We are even hearing talk of the “wall of worry” turning into a “wall of fear”. That would be bad for investors.

We recently suggested that the market was beginning to experience rotation into a few beaten down sectors. This has developed further as value stocks have started to outperformed growth names. Watch to see if this continues. A technical bright spot is that the S&P500 is still trading over its 50 day moving average. Unfortunately, the Nasdaq closed deeper under its today.

As we stated earlier in the month, we don’t expect this new C.M.O. signal to stay yellow for long either. A strong move up to a green condition or down hard to red is likely by the middle of October.

What to do now? Continue to watch the key indexes’ 50 day moving averages closely as well as the number of stocks hitting 52 weeks lows. The bulls still have the ball but have been sacked for a loss. If they punt and the 50 day MAV’s are pierced negatively with a large increase in selling volume (more Distribution), conditions will deteriorate quickly. Make sure you have prepared your exit strategy for that event. 

Have a Triumphant day! ®