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Technical Overview: Current Market Evaluation

Technical Overview: Current Market Evaluation

| February 20, 2018
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In light of recent volatility, we want to provide you with a general market overview.

Current Market Evaluation:

 

  • While we have seen a +10% correction, US Equities still rank in first place in Dynamic Asset Level Investing (DALI), followed by International Equities.  The DALI ranking is one of the most important technical indicators we track, so this is still a "pro" in favor of US and International Equities exposure right now.  Even with the recent volatility and the market pullback, US and International Equities remain firmly entrenched in the top two spots, so we continue a tactical overweight to those two areas. 

 

  • Will the sell-off push International Equities into the number one spot?  It is too early to tell, but it is important to mention that the sell-off was not just a "localized" US equity event, as the major global indexes were in the red as well.  The iShares MSCI Emerging Markets Index EEM was down -3.51% on February 5th while iShares MSCI Developed Markets EAFE EFA was down -4.19%, compared to the SPDR S&P 500 ETF SPY, which was down -4.18%.

 

  • From a trend standpoint, the major Positive Trend (PT) indicators, which measure the percent of stocks in a positive trend for a given universe, for US Equities are still positive.  As of this writing, the Percent Positive Trend for All Stocks and the Percent Positive Trend for NYSE  are in X's at 60% and 68%, respectively, so both of them are over 50%, meaning that over half their constituents are in positive trends.  Percent Trend for Nasdaq OTC is also in X's and north of 50% at 64% as well as in a bull confirmed status.  Strong, healthy markets often occur when the PT indicators are above 50%. 

 

Major Index Update:

 

  • The S&P 500 SPX fell 4.1% on Monday, February 5, 2017, which is the steepest decline since August 2011.  The decline in August 2011 took place after the Standard & Poor's cut the US' credit rating from AAA to AA+.  By the look of it, the sell-off was fueled by the prospects of economic growth, inflation, and the possibility of continued rate hikes. 

 

  • For now, the move in the S&P 500 has functioned much like a "reversion to mean."  Since September the SPX had been in what felt like a perpetual state of being overbought.  Well, that state is over because with the recent move, the S&P 500 finally crossed into oversold territory as it dropped beneath the middle of the ten week trading band (50 day moving average). 

 

Bullish Percent Talking Points:

 

  • The NYSE Bullish Percent reversed down into O's and our initial calculations show it falling to near 60%.  With the BPNYSE moving into O's, it suggests risk is heightened in the market, the defensive team is now on the field, and we are reviewing your positions closely.  Have they just pulled back to support or have trend lines been violated?  If the technical picture has changed, then we must take action.  If the position still maintains a strong technical picture but has just pulled back, then it would be appropriate to hold that position.

 

  • Going forward, we are watching for follow through to the downside, especially after we have seen a handful of Bullish Percents reverse down.  To track "follow through to the downside," we utilize the Multiple Sell Signal Bullish Percents, which measure the percent of stocks on Multiple Sell Signals.  One important Multiple Sell Signal Bullish Percent is the Multiple BP Sell Signal for All Stocks.  Right now this indicator is in O's at 18%, and it has been in O's since February 26, 2016.  If we start to see follow through to the downside, this indicator will reverse up into X's.

Until next time, cheers!

Jim

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