6 trading days and 4% higher ago the S&P500 was right around 1,400 and well within striking distance of its four year high around 1,422. Here is what we said at the time:
“As for our bearish indicators, meaning if they start performing well we expect them to have bearish implications for the overall market, we’re seeing some mixed signals. The VIX for instance, continues to remain anchored in the 16-17 range, and won’t have much of an impact on the market at such levels. The dollar though is working on a higher low compared to its February low and if it can stay above the $78.50 level it may be poised to start uptrending. Then we have Spain’s 10 year yield, which remains a little to close to 6% for our liking. Stock market bulls are best served seeing weakness in these 3 spaces, while the bears need them to ratchet higher if they want to see the market suffer another pullback.”
-@ the bell 5/3/12: The S&P500 will break 1,422 if…
Literally every potential bearish event based on those indicators we outlined in our commentary from 5/3 has come to fruition. Most concerning to us about these three indicators is with the exception of the action in the VIX, their signals seem to have gone unnoticed by the mainstream financial media. Take a look at CNBC’s market recap yesterday as well as Bloomberg’s. All either wants to talk about is earnings and Europe news, but neither mentions what key indicators like the U.S. dollar or Spain’s 10 year yields did on Wednesday.
Not only did the dollar close above $80, something it has done only 1 time since mid-March, but Spain’s yields soared. The 10 year yield in Spain rocketed to its highest level since November after just being near its lowest level in a month. The ability shown by this yield to move higher so easily compared to its slow drip lower over the last month has to be concerning. In addition, the fact that this development seems to be going unnoticed by mainstream media is even more concerning.
While the technicals suggest there could be a bounce since we are so close to key support levels in SPX, action in our bearish indicators are signaling there is much likely further downside/consolidation in store. Why do we say consolidation and not just straight downside? Because one could argue that that’s exactly what the market has been doing since the first week in March when SPX closed right around where today’s low was today: 1,343. With a few blips up past 1,400 and an equal amount of trips back towards 1,340 the market has essentially been channeling for the last 2 months. While we wouldn’t, some might argue that that’s reason alone to believe this down move is near end, but hey isn’t that what the market really is, one big disagreement?
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