Strained Again

As we highlighted last weekend, “something stinks.”  The nasty odor erupted in the form of a strong sell-off in global markets due to the emergence of yet another new strain of Covid which is particularly virulent. In fact, this was the worst sell off after Thanksgiving in 70 years for US markets.

Considering that Markets have at least a short-term memory, further weakness seems in store at least until our Sentiment and Market Internals get wrung out on the downside or the something emerges that shows the new strain is under control somehow.

Other than that occurring, traditional market stats regarding year strength especially when markets are already strong might be the exception this time around. Most disturbing is the failure of Small Caps (IWM) which has clearly failed a recent breakout which had cleared over 6 months of sideways action.

 

Risk On/Bullish

  • Risk Gauges are still neutral on the SPY despite the selloff
  • The NASDQ 100 (QQQ) did not leave a breakaway gap to the downside and its uptrend remains intact on the weekly charts
  • Value stocks (VTV) underperformed Growth stocks (VUG) even during the nasty decline
  • Semiconductors (SMH) one of the more speculative sectors in the market, continues to outperform the SPY and has the highest TSI score in the Modern Family
  • IWM is approaching oversold levels and could be ready for a bounce shortly

 

Neutral Metrics

  • Gold (GLD) broke down below key moving averages, yet is keeping positive momentum according to Real Motion
  • Volume analysis looks relatively neutral with the exception of IWM, although the purity of volume signals is a bit skewed due to the shortened holiday week

 

Risk Off/Bearish

  • All the major indices retreated heavily, down between -1.8% to -4.5%, with the worst performer being IWM with a close under its 200-day Moving Average (DMA)
  • Market internals on both SPY and QQQ which were already weak, weakened further and still aren’t at the extreme oversold levels that we’ve seen over the past few years
  • IWM volume is showing heavy institutional selling over the past 2 weeks
  • All the major market sectors ended down on the week, with Consumer Staples (XLP) and Utilities (XLU) down the least, showing that Risk-Off prevails
  • Hindenburg Omen indicator is now showing 18 market omens, the highest count since the initial pandemic market crash in early 2020
  • SPY registered nearly 350 new 52-week lows in underlying stocks, while showing virtually zero new highs
  • Sentiment readings were bearish across the board, with VXX up over 23% on Friday alone, while the cash index (VIX) was up over 54%
  • The number of stocks above key moving averages all deteriorated, especially on the 10-day Moving Average
  • Volatility (VXX) broke out to the upside taking out critical levels we highlighted last week
  • Long Bonds (TLT) approached the top of its recent trading range on flight to safety, and is now seeing overbought levels on both price and momentum according to our Real Motion indicator
  • Foreign Equities got rocked, especially Emerging markets (EEM) which is now in a bear phase, hitting new lows for the year, and earning a TSI score of -3.3
  • Oil (USO) broke down hard, but does look to hopefully be maintaining support at its 200-dma
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