From the desk of Tom Bruni @BruniCharting
We just sent out the Top 10 Charts of The Week Report that goes out to our Institutional Clients every Wednesday morning, and while I may be biased, I really enjoyed putting together week’s edition.
We discussed a few market themes as we typically do and then identified several actionable trade ideas on both the weekly and daily timeframes.
With that said, I wanted to share one chart and its caption because I think they sum up the current market environment pretty well.
Even The Strongest US Stocks Can’t Break Out
Last week we alluded to many of the “triple tops” we were seeing in the major US indexes and how we thought it would be healthy for prices to consolidate further before attempting to break out. Unfortunately, we didn’t get that consolidation and prices exceeded their former highs as momentum diverged, quickly reversing lower. The confirmation of this failed breakout skews the risk to the downside and suggests that taking profits on longs and putting on shorts makes the most sense. In a rangebound tape, we were buyers down near support and therefore should be sellers up near resistance, positioning ourselves in a way where our risk is well-defined and we can “see what happens” from current levels. We used the Russell 1000 Growth Index to illustrate this because large-cap growth has been one of the strongest areas of the market, so if it is struggling to sustain new highs then it’s unlikely other areas of the market will be able to either.
Click on chart to enlarge view.
As I alluded to in yesterday’s post “A ‘Pause-itive Development”, stock market breadth and momentum readings remain weak both in the US and Globally. In a rangebound market, we have to work with what we’ve got, which means buying weakness near support (think late May/early June) and selling strength towards resistance…at least until a clear trend develops.
Right now we’re at resistance in many of the major US indexes as one of our key leaders, Large-Cap Growth, fails to hold above its 2018 highs.
To me, that doesn’t sound like an environment where we want to be aggressively adding long exposure.
What do you think? Let us know!
If you’re interested in seeing the other 9 charts discussed in today’s institutional note, visit our website or email Jonathan Bloom directly at email@example.com for more info.