Stock Market Update
Market Update
I have been writing about a deterioration in short-term market internals for a couple of months. Even though we got a bounce in stocks last week, short-term risk is still elevated. Negative divergences are showing up in both momentum and breadth charts. Because of this, I feel the odds of further stock market weakness is still high.
Below is a chart of the S&P 500, and as you will notice stocks bounced at the first level of support.
Market breadth is still negative. The Summation Index (shown below) is both trending down below its 10-day moving average, and is displaying a negative divergence relative to the NYSE Index. In addition, it is sitting at a somewhat high level, so there is a lot of room to fall from here.
Another breadth indicator, the Nasdaq Percent of Stocks Above their 50-Day Moving Average, is also displaying a negative divergence relative to the Nasdaq 100.
Momentum indicators are still negative. Below is a chart of the 21-Day Rate-Of-Change Indicator in the bottom panel and it is still below the zero line.
Another momentum indicator that is displaying a negative divergence is RSI. As the S&P 500 has moved sideways, RSI has trended down.
The Bottom Line
Short-term risk is currently high. Odds are high that stocks will fall over the near term.
Bias: Neutral (Short-term negative, long-term positive for stocks.)
- Long-term stock market price action is positive and will remain so as long as prices remain above the June 2016 lows.
- Market internals suggest a positive environment for stocks over the longer term.
- The short-term market weakness that was signaled by market internals as far back as mid-July has been confirmed. The market is now in the process of correcting. Short-term market risk is high.
Client Update
Client accounts are between 85% to 100% invested in lower volatility funds.
I will be looking to add funds that I have identified as providing attractive risk-adjusted return characteristics once short-term internals turn positive.
For the most part, our accounts have trended up with very minor volatility this year.
Countdown to retirement: 1 year to go
If you have any questions, please fee free to contact me.
Craig Thompson, ChFC
Email: [email protected]
Phone: 619-709-0066
About Asset Solutions
Asset Solutions Advisory Services, Inc. is a Fee-Only Registered Investment Advisor specializing in helping the needs of retirees, those nearing retirement, and other investors with similar investment goals.
We are an “active” money manager that looks to generate steady long-term returns, while protecting clients from large losses during major market corrections.