As of Friday, September 8, 2017 at the close of trading EquitySurge™ has continued a strong sell signal for USA equities.
We haven’t posted over the past couple weeks because the stock market has again been consolidating for days on end in a tight sideways range. This is the market’s way of marking time without making any headway either up or down as it waits for the right catalyst to make a bigger move.
We are still of the strong opinion that the best place to be right now is heavily in cash. The following charts give some situational awareness of what the market backdrop looks like.
The first is an updated chart of the Sotheby’s (BID) to S&P500 Index as represented by the SPY ratio chart with Elder Impulse candles. This chart is now calling for the potential of a drop in the S&P500 Index all the way back to pre-election levels.
This next chart gives some color about what is going on in credit markets. It is a ratio chart of Senior Loans via the ETF BKLN to the 3-7 year US Treasury Note market as represented by the ETF IEI. Ever since a high in this ratio in early March of this year, it has been in a steady decline, meaning that Senior Notes have been trading down against underlying US Treasury Notes, a bearish sign as investors seem to be more and more worried about Senior Loan creditors’ ability to pay.
Here is a chart of the 20+ Year US Treasury Bond market as represented by TLT. Prices of longer term US Treasury notes and bonds have been breaking out higher which is pushing yields lower, a sign of investors moving to a more risk-off position. This is also pushing long-term yields lower at the same time the Federal Reserve is raising short-term interest rates, the net effect of which is flattening the yield curve, a concerning state of affairs about the prospects for continuing economic growth.
This last chart is a ratio of Consumer Staples to Consumer Discretionary. It sure looks like the Consumer Staples group has been basing since last December and is now poised to breakout higher at the expense of Consumer Discretionary. This means that consumers seem to be pulling back on larger ticket discretionary purchases in favor of allocating more of their expenditures to everyday staples and necessities, a bearish sign for overall consumer spending, a major driver and roughly 70 percent of the USA economy.
Exactly what will cause and when we’ll see a meaningful correction in stocks is unknown, but there are currently many significant signs of a major pullback looming, and you only have so many opportunities to take your profits from long positions and move to cash before it happens.
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.