As the end of June and Q2 approaches, investors should be aware of several technical indicators that are sending warning signals about the major stock market indices and select asset classes.
Below are 12 things that have me concerned heading into the end of Q2 and beginning of Q3:
1) Divergences are forming among the US stock market indices, with the Dow Jones Industrial Average having broken the May lows (and still under the June highs) and the Nasdaq 100 Index leading (and getting stretched).
2) There are also Global divergences forming as Europe appears to have peaked out last week and most of Asia peaked out between February-March… this as the US marches higher.
3) Counter-trend Exhaustion is showing up. After the S&P 500, Dow Industrials, and Russell 3000 confirmed Demark sell signals in the last 2 weeks, QQQ now has daily, weekly, 60 min, 120 min, 240 min Demark related exhaustion (TD Sequential/combo 13 “sells”) right as price has its hit upper edge of resistance — 350 should be very strong resistance
4) Market breadth, according to the percentage of stocks trading above the 20 and 50 day moving averages is literally half of the levels it recorded 2 months ago.
5) The US Dollar’s turn back higher doesn’t look complete. And given the severe bearish sentiment in the US Dollar combined with the technical thrust higher last week, a further rally into mid-July would seem to be a negative for Emerging Markets, Commodities, Materials, Energy, and possibly Industrials.
6) Market cycles confirmed last week as being important for a short-term Peak in Equities. While the Nasdaq 100 has avoided turning lower so far, it’s thought that anti-trust bills might serve as a headwind towards Tech gains in July.
7) Nearly half of the S&P 500 Level 1 sectors (11) broke meaningful multi-month up-trends last week, and have not recovered.
8) Momentum indicators like MACD remain negatively sloped for US stock market indices like the S&P 500 and Dow Industrials on daily and weekly charts and have been negative for the Nasdaq 100 since April.
9) Most Elliott wave interpretations of this rally show prices in the final wave up into July that is either ending currently, or should end into mid-July for a 10% pullback.
10) Sentiment indicators like Equity Put/call ratio maintain a very low readings UNDER .40 and moving averages of this (13 period) are at .44, which shows June the lowest since January.
11) Broader based gauges of US Equity indices, like Russell 3k and Value Line Geometric Average, broke multi-month uptrends last week and weekly momentum is negative.
12) Intermediate-term cycles based on 10, 20, 30, 60 year cycles tend to show the period from July – September as being abnormally poor. While our equity rally will certainly take “some time” to properly peak out (Indices and sectors violating May lows) it’s thought that this period should see heightened volatility this year.
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Twitter: @MarkNewtonCMT
Author has positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
