Market Overview

Markets Are At "A Line In The Sand" Moment

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Despite last week's decline in the US stock market, the S&P 500 index still remains in its Fed induced, euphoric upward trend.


The multi-month trend in the S&P 500 was successfully tested last week, indicating that equity traders are not ready to believe that the Fed will be reducing monetary stimulus anytime soon.


The US bond market, however, is telling a different story. US bond prices continue to fall and are at a "line in the sand" moment. Bond traders may be looking for a short term reversal at current levels - butif a reversal fails to appear, equity prices may quickly reverse to the downside.


Sector strength relative to the S&P 500 is starting to narrow asConsumer Discretionary, Financials, and Healthcare are the only three sectors outperforming the market.


Breaks in the current multi-month trend may be an indication that investors are protecting year-to-date profits in their portfolios as we enter summer - a historically slow period of the year - and would rather stay on the sidelines until the future of the Fed's monetary policy becomes more clear.


Despite last week's decline in the markets, the S&P 500 still remains in an aggressive upward trend.


SPX Weekly Chart (SPY):


(click to enlarge)



(source: Riverbend Investment Management)


Early signs of weakness may be indicated by a break in the multi-month trend in S&P 500 daily trend, which was successfully tested last week - indicating traders still want to be long this market.


SPX Daily:


(click to enlarge)



(source: Riverbend Investment Management)


Bond prices are still in a downward trend - but are at a level where we may see a short term reversal.


A break below the trendline may spook equity investors and cause a more dramatic pullback in equity markets.


(TLT) Weekly:


(click to enlarge)



(source: Riverbend Investment Management)


The US dollar still remains in sideways, consolidation pattern. Dollar investors may be taking a "wait and see" approach, but ultimately the US dollar is still the default global currency.


"UUP" (Proshares US Dollar Index) Weekly:


(click to enlarge)



(source: Riverbend Investment Management)


However, strength in the market is starting to narrow as sectors outperforming the S&P 500 are down to three.


Consumer Discretionary (XLY):


(click to enlarge)



(source: Standard and Poor's)


Financials (XLF):


(click to enlarge)



(source: Standard and Poor's)


Health Care (XLV):


(click to enlarge)



(source: Standard and Poor's)

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Economics Markets

 

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