A Confluence Of Trend Lines- July 24th, 2020

The US markets drifted lower, with the leading large-cap tech names selling off and moving below their trend lines. Materials and retail now have the highest SCTR rankings for sectors. Both the Nasdaq and SPX made higher closing highs early in the week.The title for the newsletter this week highlights some important data. When markets are running well, the price action is away from the trend lines. As price pulls back, we watch to see how it responds to the trends in place. Does is break the trend, but continue to make higher lows? This week has critical trend lines being tested on various fronts. The major trends in the US Dollar are broken currently with new 20-month lows, and the long term 10-year trend is broken as well. 10-year Bonds ($TNX) may break below the March 23rd lows this week, suggesting more problems. The Commodities are breaking higher on weak US Dollar data. Even the energy sector was higher on a down week for the overall market. Can crude break out above $42? Copper is trying to break out of a ten-year trend and gold is testing the 2012 prior high this week. Lastly, a lot of the global markets tested their post March uptrends. This is the same type of confluence that showed up in February.

One rare indicator I have been working on fired off a big signal of weakness this week, but I only have a few years of data. I’d make the analogy that its akin to waking up in the middle of the night. Can we just get back to sleep with a calm market, or is this going to mess things up? I’ll keep tracking the data to build out confidence in the indicator, but let’s just add an asterisk for potential risk ahead. Without the SSIH, I would have been scared out many times. Until it starts to break down, I want to maintain a bullish bias.

Summary: Large cap tech slowed, the dollar broke down hard and commodities had a solid week, especially in the precious metals. While we all get nervous when large cap tech slows, I am not seeing big breakdowns yet. If they continue to break down, the market will definitely move down with them, because of their weighting. But as the dollar goes lower, I’ll continue to shine the light on the commodity space. We are somehow able to climb the wall of worry which is about the size of Mount Kidd shown above!

Let’s jump into the charts.