What happened last week.
What we're watching for
next week.
After back-to-back weeks of rally, the market gave back some gains.
How do you feel about this market? Is this just a temporary setback that will resolve with more new highs? Or do you fear that this might be just the beginning of the big bad bear that so many pundits have been predicting for so long?
As is our tradition, we will look at the numbers without prejudice and look for clues about what's coming next.
Chart 1. S&P periodic returns.
Compare the periodic returns as of last Friday to the same readings from 6 weeks ago. You can see that the market is still under considerable pressure. The rally of 2018 is petering out, and it's an open question whether the market can regain the high ground at 2,930 on the S&P.
This Week
6 Weeks Ago
Key Markers
Now compare the distance from key markers as of Friday, versus the same numbers from 6 weeks ago. The support price I'm using is 2,581 which is the low price we reached during the last correction in January-March of this year.
We sit comfortably above that level for now, but as I said, in a fluid market like the one we're in right now, anything can happen.
Chart 2. Distance from Key Markers
This Week
5 Weeks Ago
Chart 3 - chart of the week
The Treasury Yield Curve is one of the bedrock indicators of a coming recession. It measures the difference between the interest rate on the 10 yr Treasury bond and the rate on short-term Treasury bills.
Normally the difference is in the neighborhood of 3% or so, because income investors expect to be paid a higher interest rate on a 10 yr bond than a 30 day bill.
When this relationship inverts, and the short term rate rises above the long term rate, it's called an inverted yield curve. It almost always portends trouble for the economy, and a recession is usually not far behind.
Today the spread is less than 1% and shrinking. When it goes negative, alarm bells will go off all over Wall Street and the financial media.
Chart 4. The Market Dashboard
By now most of you have become familiar with the Market Dashboard. What we see this week is a market that is clearly under pressure but not ready to give up. Items of concern are the year-over-year change, which is now just 5.5%, and the downtrending 50 day moving average. It's getting uncomfortably close to the 200 day moving average, and if it drops below that, the technicians will be out in force calling for a bear market.
Final Thoughts
It's getting harder to stay invested in this market, but that's what I'm telling clients to do. I've told them to raise a little more cash so that they can take advantage of opportunities that come along.
For a full analysis of the probability of a bear market or a new recession, see my Monthly Intelligence Report.
As always, if you like what you see, or have suggestions for improving this recap, leave a comment below, or email me at info@zeninvestor.org