Woah there horsey
A brief note on warning signs i can see going into the final months of 2020
Last week I wrote a note about why I think we can go higher moving into the final months of 2020 and this week I would like to point out some of the warning signs I can see:
Negative divergence
A negative divergence occurs when the underlying security moves to a new high in our case its the S&P500, but the indicator (RSI14) fails to record a new high and forms a lower high.
From the weekly chart below we can see a substantial negative divergence starting from January 2018.
There are still index laggers
S&P500 and Nasdaq100 pushing to new all-time highs while indexes like the Dow Jones Industrials, Russell 2000 and the Value Line Geometric index are still lagging behind their previous highs.
Equal-weight still lagging
Following on from the previous theme, here is the SPY making news highs while the equal-weighted S&P 500 struggling even to get above the peak in June
Negative divergences in breadth
Breadth data hasn’t been as strong going into these new all-time highs and is now producing negative divergences within the S&P 500’s breadth data.
Gold with strength still
Copper goes up when sentiment is bullish and growth is improving, and Gold goes up when sentiment is bearish and growth is faltering.
For a strong market, you want this ratio moving in an upwards direction and being stuck at the 2008/09 low zone, this is not bullish for the markets.
Downtrend for yields
Despite a bounce this past week in the 10-year treasury yields, it still remains super weak.
There you have it, I am still bullish on the markets, but I know which data points are throwing up warning signs so I am ready to change my thesis at any time!
So, if you have a different thesis or ideas for the current market, please share your thoughts in the comment section or get in contact with me on Twitter: @granthawkridge. The stock market always has two sides to the story… buyers and sellers, and it’s okay to switch between the two when the price/data changes.
Until next week!
Stay safe and good luck out there…
GH
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