Get Out of the Way - Midweek Update
Setups for NextEra Energy (NEE) and Vistra Corp (VST)
The S&P 500 (SPY) broke below and closed below the 21 Exponential Moving Average today telling us that the uptrend is over for now. There is a saying that “Nothing Good Happens Below the 21 EMA” and we believe that this saying is pretty much true. Although there has only been 1 Distribution Day, where 4 to 6 Distribution Days are typical before a change of trend, it is wise to protect capital first and then watch for spots to redeploy capital.
The following cycle chart was provided to our Paid Subscribers in our May Cycle Forecast article and forecasted a roll-over around the end of May.
There are many risks in the market now. As we mentioned in our Sunday article here, a 4-Year Cycle decline and trough is expected to occur between now and November 2024, and these cycles tend to have an average drop of 19%. Meanwhile, the Fed is sounding more hawkish due to a lack of progress on reducing inflation. Finally, the market has a high valuation, according to Factset here:
Market Conditions
Looking at the chart of the SPY below, you’ll notice that the SPY closed at $522.61, below the 21 EMA which sits at $522.86. Perhaps the SPY will gap up over the 21 EMA tomorrow on positive economic news, as Core PCE numbers will be reported at 8:30 AM EST. However, until the 21 EMA is reclaimed, we are in a new downtrend. RSI is in a downtrend, as the MACD just made a bearish crossover. Both of these indicators tell us that the market lost it’s upward momentum. Another possible scenario is that the SPY finds support at the R1 Pivot Point around $520 and regains momentum there. We’ll have to see what actually takes place.
Referring to the chart above there are more warning signs that we see. There are Net New Lows now for the past 2 days telling us that this is not a stockpickers’ market anymore. The McClellan Oscillator is still below 0, as the Percent of Nasdaq Stocks Above the 5 SMA (NCFD) continues to fall, while the VIX is now in an uptrend. The Advance/Decline Line did increase a bit today, which is one bright spot. However the most interesting signal is the sharp decline in the Advance/Decline Volume Line (ADV). This tells is that market participants are taking their profits. The Smart Money/Dumb Money Confidence Indicator below shows that Smart Money has been selling for some time, and now Dumb Money is starting to cash out as well.
The S&P 500 Bullish Percent Index (BPSPX) shows us how breadth is making a run for the exits. The BPSPX is in a downtrend below the 10 EMA. RSI fell below 50 telling us that the weakness is real. Finally MACD is making a bearish crossover, telling us that this trend of weak breadth can continue for some time.
The Nasdaq 100 Bullish Percent Index (BPNDX) pretty much has the same look, so even tech and growth is rolling over. Software had a notably bearish day today as Salesforce (CRM) earnings guidance disappointed. This brought down many Software stocks.
Finally it does not appear like we’ll get a Greed Grind as fear is taking hold of the market once again.
We are shifting out strategy to Capital Protection Mode. With the SPY trading below the 21 EMA caution is advised. In times of market turmoil Utilities often outperform. Right now we see setups in NextEra Energy (NEE) and Vistra Corp (VST), which will be covered in the Premium Section.
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This weekend we will provide Cycle Forecasts for the 12 main assets we cover for the month of June. These include the S&P 500, Nasdaq 100, Russell 2000, the Volatility Index (VIX), 10-year Treasury Rate, Investment Grade Bonds, High Yield Bonds, US Dollar, Crude Oil, Gold, Silver, and Bitcoin. Founding Members will be emailed Annual Cycle Forecasts to the end of 2024. If you would like to receive the Annual Forecasts consider joining as/upgrading to a Founding member.
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