There have been three changes in the last three weeks. The summary turned negative on 11-June, positive on 18-June and negative again on 24-June. Interpretation of these indicators is somewhat subjective. For instance, the NYSE AD Line appears to be forming a lower high with this week's sharp downturn so I am labeling it bearish until its break above the June high. In addition, the major index ETFs retraced 50-62% of the April-May decline and turned lower this week. Lower highs could be forming to start a downtrend that would be fully confirmed with a break below the February-June lows. I consider relative weakness in the consumer discretionary sector the most disconcerting sign of all because this is the most economically sensitive sector.
- AD Lines: Bearish. The Nasdaq AD Line failed to break above its late May high and the NYSE AD Line appears to be forming a lower high (below the early-mid May highs).
- AD Volume Lines: Bearish. The Nasdaq AD Volume Line failed to break its late May-early June highs. The NYSE AD Volume Line failed to hold its breakout and came down hard the last two weeks.
- Net New Highs: Neutral. The cumulative Net New Highs line for the Nasdaq remains in a downtrend. The cumulative Net New Highs line for the NYSE is flat.
- Bullish Percent Indices: Neutral. Even though four of the six BPIs for the major indices are above 50% and five of the nine sector BPIs are greater than 50%, the consumer discretionary sector, finance sector, Nasdaq and NY Composite BPIs are below 50%. These four are too important to ignore.
- Sentiment: Neutral. The S&P 500 Volatility Index ($VIX) and Nasdaq 100 Volatility Index ($VXN) turned up as stocks turned down this week. Perhaps support from broken resistance will hold.
- Trend Structure: Neutral. The major index ETFs surged off support in early June, but hit resistance after retracing 50-62% of the April-May decline and fell back rather sharply this week. Lower highs formed this month and this could be the start of a downtrend.
- SPY Momentum: Bearish. The Aroon Oscillator surged into positive territory, but MACD turned back down and RSI moved back below 50.
- Offensive Sector Performance: Bearish. I am very concerned with relative weakness in the consumer discretionary and finance sectors.
- Nasdaq Performance: Bullish. The $COMPQ:$NYA ratio remains in an uptrend overall.
- Small-caps Performance: Bearish. The $RUT:$OEX ratio has been moving lower since April.
- Breadth charts have been updated (click here)
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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