Market Regime – Weighing the Evidence using Trends, Breadth and Yield Spreads

Stocks are all over the place in April with a breakdown at the beginning and a Zweig Breadth Thrust towards the end. April price action seems to dominate, but it was the March breakdowns that reversed the long-term uptrends. The weight of the evidence also turned bearish in mid March as long-term breadth indicators also triggered. Currently, the long-term

Today’s report starts with the Zweig Breadth Thrust, which failed to trigger for the S&P 500, but remains a possibility for the S&P 1500. Follow through in the coming days is needed to trigger. We then turn to detailed analysis of SPY, which is below its falling 200-day SMA and near short-term resistance. Stocks are still broadly out of favor with eight of the eleven sectors

The weight of the evidence remains bearish, but stocks are currently experiencing an oversold bounce. This video will show upside targets and show what it takes to go from a bear market bounce to a bullish breadth thrust. Attention then turns to nine equity ETFs that are holding up the best, including two tech-related ETFs. In the alternative asset group, Bitcoin broke out and the DB Agriculture ETF is making a move. Gold is going parabolic and getting dangerous.

The long-term trends and breadth charts have been net bearish since mid March. SPY, QQQ and the S&P 500 EW ETF (RSP) are in long-term downtrend since early-mid March. Six of the nine breadth indicators were bearish as of mid March. The bond market and Fed policy are the wild cards.

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Today’s report will focus on some commodity-related ETFs for two reasons. First, we are in a bear market for stocks. Second, these ETFs are in uptrends. Despite these uptrends, volatility is increasing in this group as well. There is no escaping volatility these days. We will also cover Bitcoin because it is an alternative asset that is setting up.

The weight of the evidence remains bearish. Stocks are in the midst of an oversold bounce, but we have yet to see follow through strong enough to trigger a bullish breadth thrust. SPY and QQQ are in long-term downtrends and near short-term resistance levels after their oversold bounces, which creates a precarious situation. In fact, several ETFs are hitting resistance levels after oversold bounces. Some ETFs are even showing relative strength, but this really means “less weakness”. Gold remains the ultimate safe-haven and Bitcoin has a bullish failure swing working.

Even with the big rebound last week, the vast majority of stocks are below their 200 and 150 day SMAs. Only 23% of S&P 1500 stocks are above their 200-day SMAs (77% below), and only 20% are above their 150-day SMAs (80% below). New lows expanded last week with over 30% of S&P 1500 stocks hitting 52-week lows.

The weight of the evidence remains bearish for stocks and the bounce over the last four days is considered an oversold bounce. Our short-term breadth thrust indicators have yet to trigger. Until these indicators trigger, I will consider this a bear market bounce. This means negative outcomes are still more likely than positive outcomes. Resistance zones are more likely to hold and support levels are more likely to be broken. In short, risk in stocks remains above average. See this report for an update on the thrust indicators..

The analysis mode remains macro because the weight of the evidence is still bearish for stocks. Moreover, the markets are unhinged with stocks, commodities, currencies and Treasury bonds fluctuating wildly. Chaos makes chart analysis exceptionally difficult. Perhaps there is opportunity in the chaos, but the current market environment is for nimble traders with quick trigger fingers.

This market regime report weighs the evidence to determine the state of the stock market. Are we in a bull market or bear market? We start with the long-term trends for three major index ETFs (SPY,QQQ,RSP). Attention then turns to breadth indicators to measure the percentage of stocks in uptrends/downtrends and the percentage hitting

Everything, well, almost everything, fell the last four trading days. This includes the gold and US Treasury Bonds. The Dollar was hit hard, which means other currencies gained. Stocks, industrial metals, oil, crypto and foreign stocks were all down the last four days. Within the US stock market, all sector ETFs and all but two

Before looking at the current extremes, keep in mind that the weight of the evidence on the Market Regime page is bearish. We are in a bear market, and bear market rules apply. Support levels are less likely to hold and Bullish Setups are less likely to work. Stocks are extremely oversold right now: long-term and short-term. These oversold conditions could lead to a bounce, but this will be considered a bear market bounce as long as the evidence remains bearish. With volatility higher in bear markets, we can expect some sharp counter-trend bounces and erratic price action.