No matter how you try to look at the market, there are warning signs. From copper depletion to weakness in big technology names, the trade is at risk under attack. Meanwhile, the big rota trade is looking for some just for days and then disappears as fast as it appears.
The stock market is tired, often worn out. Those messages are sent all over the market from bonds to trading items, and yes, even stocks. The messages need to be listened to clearly, as they suggest that the next big leg up in the stock market is likely to be lower. Like I said last week about some of these remarks, they remain louder.
Technology
The most important source of concern from the shares seems to come from its most vital component, the technology sector. That one sector accounts for almost 1/3 of the entire S&P 500 index. The weakness in the group can be felt not only here in the US, but all over the world. The relationship between these supplies is rather wonderful.
The most appealing relationship is the one between Tencent Holdings (OTCPK: TCEHY) in Hong Kong and one among the technology giants in the US. This relationship started to break up a few weeks ago, and the focus should remain on it. The chart below shows how close Tencent has traded against the Nasdaq 100 ETF (QQQ). The chart below shows that Tencent has struggled in the past few weeks and even started to lower, creating a divergence.
The relationship with Amazon.com (AMZN) and Tencent seems to be even more robust, and again a divergence has begun.
The relationship between Netflix (NFLX) and Tencent seems to be getting even tougher, and there is no divergence this time around. They both go army together.
Bonds
It is not only in the technological space where weakness creeps. There is a divergence between the S&P 500 ETF (SPY) and the high-yield ETF (HYG). Again, as a sign of willingness to take risks, the risk appetite for high-yield debt is now different from that of the S&P 500. The two have followed each other closely since the March lows.
Not only is it in high-yield debt, the investment grade debt ETF (LQD) has also taken a noticeable turn lower, moving away from the S&P 500.
Copper
We now also see commodity prices slipping lower, and deviating from the broader equity indices. The price of copper has fallen to $ 2.86 from a peak of $ 2.99. But since the beginning of August, copper prices have been driving lower, while the S&P 500 has been driving higher.
South Korea
In addition, there are signs that some major international markets are overheated and thanks to a pullback. For example, the South Korean KOSPI has increased by more than 60% from its March low. It has resulted in the relative strength of the index hitting a very high level of around 82. The last time the RSI reached that high was back in April 2015, which led to a sharp decline of the index.
All of these indicators seem to suggest that markets, not just stock markets, are signs of fatigue. Or maybe they are picking up something, a trend in the economy that the stock market has not yet picked up.
It could be that some are beginning to worry that without a new relief bill from Congress, economic recovery could take place here in the US. In addition, the lower unemployment benefits could result in retail sales following a very rapid recovery.
Whatever the reasons, the signals picked up by market participants seem to be very loud. And unless something changes rapidly, the case for a stock market retreat continues to grow stronger.
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Announcement: I / we have no positions in named shares, and no plans to initiate positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose supply is mentioned in this article.
Additional disclosure: Mott Capital Management, LLC is a registered investor advisor. Information presented is for educational purposes only and is not intended to be an offer or solicitation for the sale or purchase of specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to consult with a qualified financial advisor and / or tax professional before implementing the strategy described here. Upon request, the consultant will provide a list of all recommendations made in the past twelve months. Past performance is not indicative of future results.
