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Market Update - September 16, 2016

Economic Comment

Earning season is over and political news is dominating headlines. Friday, September 9th the market had a sharp drop. Monday, September 12th a nice rebound only to see Tuesday’s sell off turn things around again. Historically, September and October have been poor months for equity investors and that scenario looks to be playing out. Let’s review our indicators.

Bullish Percent’s

10 Week Bullish Percent (Short-term): at the beginning of September this indicator hit 66%, which is overbought. That overbought situation has been relieved rapidly with this indicator falling to 38%. Now slightly oversold, the question is- will it go below 30% the low from the Brexit sell off.

Optionable Stock Bullish Percent (Intermediate term): after reversing to OFFENSE in mid-July, this indicator has reached 62%, exceeding April’s high of 58%. In the last several days, this indicator has deteriorated to 59%. It would reverse to DEFENSE at 56%.

NYSE Bullish Percent (NYSEBP) (Longer-term): this indicator is on OFFENSE and has reached as high as 66%, the same level as April. Currently, at 63%, the reversal to DEFENSE would happen at 60%.(Source: Dorsey Wright)

Point and Figure Charts (Source: Dorsey Wright)

S&P 500: Reached 2,090 in August; and so far for September has traveled down to short-term support at 2,120. There is a zone of support from 2,040-2,100, which looks firmly in place. For those of you who like to see moving averages, the 200 day moving average is currently 2,090. A close below that level would be medium-term negative. However, many times, markets bounce off their 200 day moving averages before heading lower. (Source: Dorsey Wright Website)

S&P 500

SP5009.16.2016

Crude Oil: We haven’t shown the continuous crude oil chart and thought we would update you. This week crude oil retreated and was blamed for some of the selloff in US Equities. However, the chart is showing more of a consolidation within an uptrend. In August, crude oil didn’t even get to the uptrend line before rallying. $41-42 is where the uptrend line comes in to play.(Source: Dorsey Wright Website)

Continuous Crude Oil

CrudeOil9.16.2106

US 10-Treasury Note: the 10 year’s higher yields this week have also been to blame for the equity market’s sell off. The move from 1.6% to 1.75% was quick, but you can see the long down-trend line the 10 year has to get through. This could be some tough resistance to get above. (Source: Dorsey Wright Website)

10-year Treasury

10yearTreasury9.16.2016

Relative Strength: Still a tight horse race between the top three asset classes. Domestic Equities are #1, Commodities at #2 and Fixed Income at #3. (Source: Dorsey Wright Website)

Conclusion

Many different factors have been blamed for the recent pullback, such as, higher interest rates, lower oil prices or a presidential candidate’s video. The day each excuse was released, the markets responded with a selling off. We are focusing on risk factors; and we still believe that risk is high in the current equity environment. We remain cautious and are following the defensive play book.

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