My Homemade Artificial Intelligence Tools Tell me This About the Current Stock Market Situation – Sept 29/20

  • Trends & momentum remain negative short-term for US Equity indices and #SPX requires a move back over 4465 to expect this weakness is complete
  • Treasury yield breakout looks to extend, and should be bullish for Financials, yet might weigh on Technology near-term (Growth might underperform into October)
  • US Dollar index’s breakout to new highs for 2021 can allow for underperformance in EM, commodities into October
  • Breakdown in SPX makes it a bit early to expect an immediate snapback without more proof heading into October.  4300 is key as support while 4465 resistance:
“Dead-Cat Bounce”- More needed to think a low is In

Ongoing Short-term Concerns:

  • Traditional technical momentum indicators like MACD are negatively sloped on daily while RSI is not oversold
  • ​Uptrend from March lows have been violated by SPX, and broader-based IWV.
  • ​Inter-market negative momentum divergence present on several different time frames
  • ​Broader-based gauges like Value Line Geometric or NY Composite peaked out in Spring and never followed SPX, NDX to new highs in August
  • ​Half of SPX major Sectors peaked out this past Spring, while Technology has camouflaged this market rally given “FANG” dominance
  • Market cycles suggest weakness could persist into October before rally back to highs
  • Junk bond Spreads have widened out since July and have not tightened to new lows with push to new highs of equity indices into August
  • Leading sectors like Transports, Semiconductors have lagged in recent months
  • Treasury yield rally (which looks to continue, has served to deflate Growth/Tech 
  • As seen below, Growth has begun to turn lower vs. Value after Treasury breakdown (yield rally)  has led to Technology weakness near-term, while Financials, Energy remain strong.  Given a four-month trendline violation, this looks likely to last into October:
“Dead-Cat Bounce”- More needed to think a low is In