Stock Market Is Making A Triple Top?

The S&P went up yesterday while oil tanked. Depending on which index you look at, the U.S. stock market “could” be making a triple top. (Also, U.S.-Mexico negotiators failed to reach a deal). Yesterday’s headlines:

  1. Volume is interesting
  2. Defensives are outperforming
  3. Treasury yields and stocks are both up
  4. 30 year – 2-year yield curve steepening
  5. What oil & gold are saying about stocks
  6. Will the S&P “catch down” to oil’s crash?
  7. Some very bearish patterns.

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

 

Interesting volume

While the S&P was falling over the past 4 weeks (excluding this week), SPY’s volume was also falling (SPY = S&P 500 ETF).

This is unusual because stock market declines usually coincide with a spike in volatility.

 

Here’s what happens next to the S&P when SPY falls more than -5% over the past 4 weeks, while volume falls more than -2%

It’s interesting to see how this occurred quite regularly during the 2000-2002 and 2007-2009 bear markets.

Defensives surge

While the stock market rallied over the past 2 days, defensive sectors such as utilities have done well.

At the very least, outperforming defensive sectors is not a bullish sign for stocks.

Here’s what happens next to the S&P when XLU rallies more than +3.5% over the past 4 days, while the S&P rallies less than +1.5%

 

 

Forward returns are less bullish than random.

Treasury yields and stocks

Treasury yields and stocks continue to be strongly correlated. Both yields and stocks have gone up over the past 2 days.

Here’s what happens next to the S&P when the 10 year yield and S&P’s 2 day rate-of-change both exceed 2%, while their correlation is greater than 0.85

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