Technical Warning Signs Continue to Grow

With the May pull-back in the markets, the technical landscape for the market has really deteriorated. Momentum is clearly to the downside, and stocks across most sectors and market caps have been falling. There have been very few safe ports in the storm so far.

One of the dangers of aggressive bear markets is the increase in correlation across investment categories. When massive systemic risk shows up (and markets are declining on a broad basis), diversification is a less effective risk management tool. This is a large part of the reason behind the BigFoot Marco Indicators – to give some tools to manage systemic risk.

So far, the BigFoot Macros have been hanging in there (translation: they’re still long). Note though, these indicators are lagging in nature. The technical landscape can still offer some perspective on the markets.

A quick look at both the market cap and sector proxies for the markets shows a lot of negative momentum (note the background color of the charts below – the red background indicates a negative pricing trend for the rolling 3-month trading period).

Market Capitalization Proxies
S&P500 Sector Proxies

The chart below shows key areas of potential support and resistance over the next few weeks. The downside momentum is significant, with the 2679/2661/2609 areas looking like support areas worth keeping an eye on.

For the week, trying to predict where this thing is headed is a challenge. The negative momentum is significant. However, the markets have been triggered by trade war concerns. So any meaningful positive developments on these fronts could drive a sharp reversal.

The ‘black swan’ probability is pretty high right now.

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