Clint Sorenson, CFA, CMT
WealthShield
Long-term market internals broke below previous lows and now suggest further downside. Short-term market internals are not yet oversold despite bearish
sentiment. However, defensive assets are significantly overbought, suggesting a potentially precarious situation.
The Good:
- The S&P 500 has not broken below key moving averages or support levels.
- Several sectors remain in positive trends.
- The ECRI WLI is up 0.29% year-over-year.
The Bad:
- ISM Non-Manufacturing PMI dropped last month.
- Inflation continues to slow.
- The Dollar remains in a positive trend and the Yen was strong last week.
- Market sentiment is negative as the risk free asset is outperforming both international and domestic equities as well as high yield bonds in a majority of time frames.
The Ugly:
- The 4-week moving average of the ECRI WLI is negative -1.29% year-over-year.
- Credit spreads are not confirming the S&P 500 and are widening.
- Defensive factors and sectors are leading the market.
- The U.S. 10-year yield dropped 12 basis points and suggest slower growth.
Chart of the Week: Long-term market internals are breaking down. This suggests that equity markets could also break down.
Chart 2: The U.S. ISM Non-Manufacturing Index dropped to 53.70, the lowest level since the 2015-2016 slowdown.
Chart 3: Producer Prices show a continued slowdown in inflation on a year over year basis.
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