The S&P 500 is confirming that false breakout as it starts to pull back off of the major fib extension level mentioned here time and again. The broad market bears are winning. At the same time, long biased stock traders are still rolling in it. Really, The only people not winning in this market are bond bulls.
Friday's bounce was incredibly broad in growth stocks after the false breakout early in the week. Are correlations picking up? Maybe. Regardless stock action was pretty great.
There seems to be this stigma attached to the next correction as 'the big one'. The ah-ha you can't fool me sentiment has grown stronger, which just seems structurally bullish. Obviously, it's allowing for some massive gains in individual stocks.
At the same time, the most defensive groups: utilities and staples are going to shit. Treasuries are hitting new lows and Gold can't find a bid. That speaks volumes to me.
Enough talk, let's dig into the charts.
MACRO
There are so many layers of support in the S&P 500. I'm particularly watching the weekly candle bottomy tails down to 2070ish.
The Russell 2000 to 30 Year Treasury ratio is ripping out of a 9 month bottoming pattern as the MA's turn up. How much of that bond money flows into stocks?
The show-me-tell-me (Small Caps relative to the Dow Industrials) ratio is approaching some mighty resistance.
With all the talk of the transports divergence, not once has somebody mentioned the extreme dislocation in the second half of 2014 where transports massively outperformed relative to industrials. Now that major dislocation has been resolved.
The Bond Market
Clearly the bond market is the biggest in-our-faces risk. Instability and uncertainty of any sort historically drives valuations lower. However, that didn't really happen with one of the strongest U.S. dollar rallies ever. It'll be interesting to see how this plays out.
Jonathan Beck laid out the signs of widening yield curve last month.
A couple of weeks back I noted the relative strength in emerging market bonds. Well, that's gone now and was a pretty nasty base breakdown.
The U.S. 10 year treasury is testing some major resistance here.
High Yield Corporate Bonds also broke down in a big way. It's not worth getting that worked up about until the March low is taken out. The worst case scenario is this is a roughly a year long M top as sellers have shown up at the 90-91 level time and again.
Japan's 10 year note has broken a multi-year downtrend.
Financials relative to the S&P 500 have left an 8 month falling wedge range.
Regional Banks relative to the S&P 500 have worked their way out of a nearly year long base
Utilities have lost their long term trend-line off the 2009 lows.
Consumer in focus
Consumer Staples are also slipping below a multi year trend-line.
As a result of the Staples weakness the Consumer ratio has hit highs.
On the other hand Consumer Discretionary relative strength has one helluva potential setup for out-performance.
Other Markets
U.S. Markets have broken clear of the 2015 downtrend relative to the rest of the world.
Is breadth about to pick back up? S&P 500 equal weight index relative to the S&P 500 is basing at the 200D MA. It's also worth noting that it seemed like Friday's rally was the broadest in some time.
Gold free fell after the gap up last Monday. A big move appears to be coming.
It's a big week for Nat Gas as it tries to base out.
The Defense index is testing the 40 week moving average after an orderly correction. It's time to look for longs.
If you look at the semi group, you'll see an aggressive weekly reversal candle. The daily chart gives a better perspective. It might just be a base back-test. Regardless it's important to always view all time frames before making any decisions or interpretations.
Trade 'em well!
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