There are a number of indicators at the moment that suggest to me there is more downside in store for US equities and most likely global markets as discussed here. The above chart shows the ratio of the S&P 500 to the Utilities. When Utilities outperform, this shows money rotating in to defensive stocks as more risky assets are sold and typically coincides with falling equity prices.
On a similar note, the chart below shows consumer staples outperforming consumer discretionary names. Again a sign of rotation away from risk assets. We would want to see consumer names that benefit from discretionary spending outperforming in bull markets. The breakdown in this ratio looks of major significance to me.
Consumer Discretionary names also look to have suffered a significant breakdown vs the S&P 500.
Financials are also under-performing vs Utilities, not something you'd expect to see in either a rising rate environment or a bull market.
Nasdaq vs SPX has broken down as well as the Semi's vs SPX. The rise off the 2016 low has been associated with out-performance of these two.
One last indicator I'm keeping an eye on is the Gold vs SPX ratio. This market hasn't yet confirmed the trend is now higher but should that happen, it would add to the bearish outlook.
All this suggest we should continue to remain defensive on both US and global equity markets. I'm expecting lower prices coupled with higher volatility than market participants have been conditioned to expect over the last few years.
Financials underperform utilities because interest rates are just starting to rise and usually most of the debt of utility companies is medium to long term debt.
I learn a lot from you. Keep up the good work men.
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