[Premium] Weak Gets Weaker

JC Parets
June 27, 2018

Over the last month we've spoken about weakness in small and mid-caps and the sectors we want to be involved in on both the long and short side. In healthy market environments we see sector rotation keep the broader market afloat as leaders correct through either time or price, however, we've not seen any of that over the last few months. The weakest sectors have not caught a bid as leaders correct, instead they've gotten even weaker. This is a problem.

To illustrate what I'm talking about I want to look at charts from several of the weakest sectors that we've been pointing out.

First on our list is Nifty Infrastructure Index which is breaking down on an absolute basis and is crashing on a relative basis, hitting all-time lows versus the Nifty 500.

Click on chart to enlarge view.

The Nifty Commodities Index is completing a major topping pattern as well, with relative performance hitting 2+ year lows.

Nifty Metal Index looks very similar, except it's breaking down below its 2014 highs to confirm its rounding top.

After a tepid relief rally, the PSU Bank Index looks ready to continue to new lows relative to the Nifty 500.

The Nifty Realty Index is rolling over to 8-month lows on an absolute basis and 15-month lows on a relative basis.

Nifty Media Index is at 8-month lows on an absolute and relative basis.

Lastly, the Nifty Auto Index is sitting near 3-year lows and looks poised to head lower after several failed attempts to reclaim support.

The Bottom Line: The commentary is short and sweet because the message is clear, these sectors look awful. The weight of the evidence continues to shift in favor of the bears as sector leaders like Energy correct and the weakest sectors mentioned above continue to fall. As we've spoken about in previous posts, we want to focus our short efforts on the small and mid-cap names within these weak sectors and our long efforts on large-cap names in sectors near all-time highs like Private Banks or those improving on a relative basis like Pharmaceuticals. While these sectors continue lower, we'll keep an eye on the equally-weighted versions for potential divergences that could indicate a bottom. For now, this is the market we have, so let's stay focused on the clearest signals and ignoring the areas where we have less of an edge.

For specific levels on any of the sectors we cover, please visit the related chartbook page.

Thank you for reading and please let us know if you have any questions.

Allstarcharts Team

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