U.S. Equities: Charts Forecasting Long-Term Weakness

Published 06/29/2016, 12:02 AM
Updated 07/09/2023, 06:31 AM
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Typical. It always feels like markets make major moves while I'm away. So, in brief:

[1] Markets (and more reliable forecast/betting markets) got the Brexit vote horribly wrong and it's going to be a long (long) time before market confidence returns: Broken Leave promises, broken Conservative and Labour parties, a leaderless British government, a half-in/half-out Brexit with article 50 still to be administered, the Scottish/Northern Ireland problem, an EU which will look to throw the UK under the bus etc etc. There are lots of questions to be answered before markets could consider breaking May highs (when markets had priced for a status quo vote).

[2] What does this mean for Europe as a whole, or more pressing, the U.S. election? A Trump victory got a boost with the U.K. populist vote. Imagine how markets will react if Trump does win the November election...

[3] The weekly charts had been consistent in forecasting long term weakness. I had highlighted this here if you haven't read it.

The relationship between Staples (via Consumer Staples Select Sector SPDR (NYSE:XLP)) and Discretionary (via Consumer Discretionary Select Sector SPDR (NYSE:XLY)) looks set to close the month below the last swing low. Worse still, the S&P looks really extended from March lows despite Brexit selling.

A market low will require a technical low, and the S&P is some way from this.

XLY:XLP:SPX Monthly 1995-2016

NASDAQ breadth metrics took a big hit, but are not yet oversold. Plenty of room for downside before a low can be considered

NASI:COMPQ Daily

Funnily enough, volatility in the S&P brought an overshoot of wedge support, but yesterday's rally did occur at this support level. Don't discount a relief rally back to the 50-day MA.

SPX Daily

If you are a long term stock holder, taking some profits may give a chance to buy cheaper in the months ahead. For a short term traders, there is plenty of opportunity for the nimble, but not one for the feint-of-heart.

The best opportunity may come with an indices approach, what for many are exhibiting, converged moving average resistance of 20-day, 50-day and in some cases, 200-day MAs.

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