First week of real damage on the major indexes was accompanied by a big drop in the breadth readings. It is times like these that can be the toughest to read and certainly warrant some caution. The tough read comes more from the the breadth than the price action alone. Looking at the price action the reversals are pretty clear and we made lower lows in many of these charts. However, the bearish undertones are dampened a bit by the structure of the moving average readings. Many are showing the 20sma reading at or nearing oversold while the 50sma readings are just now moving into neutral positioning and the 200sma readings holding strong in most places. More times than not that is ultimately a bullish set up. That doesn’t mean we have to bottom this week or next. The 20sma reading can fall further and stay low, but if the larger uptrend is to remain intact, we should keep our eyes open for a bottom to form sooner than later.
Now for the rub. If we don’t find a bottom before the 50sma and 200sma readings start materially deteriorating or we see a very weak bounce in the 20sma readings then we have to consider this an initiation move. That would suggest this turns into a larger pullback or possibly a major top. I am not looking for that at this point, but doesn’t make sense to rule anything out in the markets. As usual, we will let the data speak for itself as we move forward.
First, the Total universe of 1898 companies posted over the $SPY
Consumer Discretionary (325)
Consumer Staples (91)
Health Care (199)
These are custom indexes so you cannot invest directly in them, but there are plenty of ETFs available for each sector. For me personally this is another form of relative strength, just with a broader lens .
Good Luck! It is there for you to make.