YTD Gains are Gone and 200MA is Broken…Now What?

Well this has been a great weekend, at least for the Thrasher household. Went to a farmers market, a minor league baseball game, and spent some much-needed time out on the patio with our dog enjoying the excellent weather.

But I know that’s not why you’re reading this so back to the markets…

As Josh Brown noted on Saturday, there is a good chance we see continued selling going into this week due to managers use the 200-day moving average as a risk management tool and will cut equity once the MA has been violated by the S&P 500 (as it did with Friday’s close).

Going back to the 2002 low, the percentage of stocks trading above their 50-day moving average typically is below 10% near market bottoms Which you can see in the chart below. Currently, the percent of stocks that make up the Nasdaq, S&P 500, Dow, and NYSE are all more than 10% above their 50MA. We are getting close, with the S&P having 12.8% of its components above their 50-MA, but just not there yet.

The selling indicator that I referenced on May 31st continues to show sellers increasing their share of volume. Copper has continued to breakdown, which isn’t much of a surprise as China printed weak PMI data last week. I’m still seeing flows running for those ‘risk off’ positions.

The CCI indicator, which is a momentum indicator that looks at a stock or index’s current price compared to its average price over a specified period. When applied to the DJ Industrial Average, we see that not enough pain has been felt, so to speak, to warrant an oversold level like we have seen at previous market lows.

And finally, we haven’t seen as many new 52-week lows as we normally see at market troughs.

Yes the gains that took 4 months to build (in the Dow) were whipped away in a single month, but it just hasn’t been THAT bad…yet. Greece is still a mess, other EU countries aren’t improving, China isn’t the rock star it once was. And although certain pockets of this market I feel are oversold, it appears more downward pressure could be experienced. There just isn’t much for this market to get excited about. Now this all could change very very fast, and there’s no reason to try to predict when that happens. I’d rather watch and listen to what the market shows and tells us rather than try to be hero.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.