As of Friday, June 9, 2017 at the close of trading EquitySurge™ has continued a strong sell signal for USA equities.
Since reaching the 261.8% Fibonacci Retracement from last Summer’s high to the election night low on the S&P500 Index Futures a few days ago, the market has danced around that Fib which resides at the 2428 level. Until Friday that is, when the Futures did a classic “pop and drop” move of climbing sharply higher in the morning off the open but then turning around and selling hard into the afternoon. Importantly the move down was led by the venerable mega-cap technology stocks including Facebook, Amazon, NetFlix, Google (Alphabet), Apple, Adobe, Nvidia, and Microsoft, among others, which have been the sole leadership group of much of the year-to-date gain in the S&P500 Index.
Why is this so important? Because the rally in the S&P500 Index since the election has been dominated by these large technology stocks, so much so that just 10 large technology stocks have accounted for more than HALF of the Index’s gain in 2017! Remember there are 500 stocks that make up the Index, so with just 10 of them accounting for more than 50% of the year-to-date gains, you have an extremely narrow rally. Think of this rally as an upside down pyramid sitting on its top. Not a very stable image, right? Looks like the pyramid could fall over at any moment…
Many have been saying that we are full of buffoonery for remaining steadfast since last December 7th with our strong sell signal on equities and missing the roughly 8 percent rally since then. But we picked up significant signs of negative divergences in this rally since the election very early on, and rather than countermand those signs, we have suggested repeatedly during 2017 that investors should take profits on long positions into the rally, rather than chase it higher.
Our opinion has been and continues to be that this rally is built on very poor fundamentals and extremely narrow leadership, and because of that and many other factors it is subject to a quick and violent drawdown that could cause investors to go cold with fear.
Strong statement? Yes, but Friday’s action in the tech stocks is just the opening salvo in what may turn into a vertical elevator shaft down in prices. There is a chance we see a record-setting single day loss in the major indexes sometime soon. Translation: a crash.
Here is the updated S&P500 Index Futures Daily chart showing what we believe to be the terminal reversal candle of this rally on Friday. Be aware!
If you would like to review the EquitySurge™ trading signals generated in 2016 and so far in 2017 please see the Trading Signal Performance Chart page.