Choppy Market Ahead
Blair Jensen | Sep 18, 2016 02:52AM ET
Over the past few weeks the market has shown some rotation out of big cap stocks and into mega cap stocks. When this occurs it generally causes choppy sideways consolidation, at the least, or a short term top with a modest consolidation (5% to 15%).
I like to use a dip below the 20-week moving average in the ratio between the S&P 500 Equal Weight Index (SPXEW1) and the S&P 500 index (SPX) as a warning sign. This week, we’ve got that warning, so we should expect a choppy market ahead. Only time will tell if this is normal rotation or a flight to safety, so keep an eye on this indicator over the next few weeks.
My core market health indicators showed weakness this week too, with the exception of market quality. It managed to improve, which is a minor hint that the rotation we’re seeing is more likely profit taking and re-positioning rather than a flight to quality/safety.
Conclusion
It looks like we should expect some choppy market action over the week or two (at the least). If the ratio between SPXEW and SPX continues to drop then I’ll get concerned that we’re seeing a flight to safety.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.