Let the Down Trend Resume

By | February 7, 2016

It appears as if the down trend for the S&P 500 index (SPX) is resuming. The most notable sign comes from 7 day momentum for SPX. It is turning down from below the zero line. When this occurs it usually means more pain ahead. With our breadth indicator below zero, bear market rules apply so we should expect downturns in 7 day momentum to precede strong declines. For those of you interested, I’ve been chronicling some of the “traditional” technical analysis indicators that indicate we’re in a bear market here.

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Breadth calculated between bullish and bearish stocks on Twitter is moving sideways, with the number of bearish stocks hitting new highs, but some value buying causing a slight uptick in the bullish count. Take a look at the stocks on the most bearish list (1 month) and you’ll see it littered with stocks that should be leading if we’re in a bull market. This doesn’t bode well for the market going forward. On the bullish side, you can see the stocks where value buying is occurring if you scroll to the bottom of the most bullish list. Of course, the top of the most bullish list shows the stocks that have held up relatively better than the market.

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Price targets gleaned from Twitter for SPX continues to show the same picture; no hope for higher prices and tweets calling for a retest of the last lows. There are also a lot of tweets calling for substantially lower prices. Expectations are clearly bearish.

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The sectors show some interest in basic materials and industrials. Two sectors that have been beaten down badly. This is another sign of some value buying occurring.

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Conclusion

It appears as if the downtrend is resuming. 7 day momentum is rolling over from below zero, the number of bearish stocks continues to make new highs as more dominoes topple, and price targets are all pointing down. Please keep you hands and feet inside the car at all times.

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