Marketwide Risk-Off Shaping Up
As people may be aware, I have been tracking what looks like a bearish diamond on SPX.
Naturally, these have a certain failure rate (as do all technical analysis forms) however this does not mean that they should not be treated with caution when trading and it does not mean that the potential for a risk-off move should be dismissed.
Furthermore, there is a lot more evidence I can submit to back this idea up and this is what I shall explore within this piece.
Firstly, as we might be aware, many stocks on the NYSE are already in a state of decline.
This started with small-cap stocks such as GME and PLTR which we can see have had a rough time of it of late.
GME is down about 75%
PLTR is down about 75% over one year.
The broader Russell 2000 (RUT) has already dropped by around 15%.
As such, small caps have been suffering for months.
This is nothing new particularly. However, it seems that the context of this bloodbath of small-cap stocks could be part of something much broader.
In the past couple of weeks, we have observed large caps also starting to struggle.
FB is down about 42% from September 2021 to the present.
NFLX is down about 45% over the same period.
AMZN fell by about 25% over the last 3 months.
All of this is self-evident and raises lots of questions.
The most important being, "where do markets go next"?
Fundamentally, I do believe that bigger things are happening.
If we look at some of the less-prominent big-cap companies we can see what appears to be similar risk-off moves shaping up.
For instance, JPM seems to be showing signs of a rising wedge after an -18% fall.
INTC is currently undergoing a rising-wedge breakdown.
XOM appears to be forming a rising wedge after a parabolic move over the last 4 months.
AABV is undergoing a similar move on the fine resolution.
In summary, the rout which began in small-caps appears to be migrating outwards.
I am not sure of the cause of this yet. However... there are some risks on the horizon due to the FED ending its easing program and beginning fiscal tightening.
There is also a very bearish outline for oil shaping up which I have explored in further detail here.
I strongly suspect that the same forces we are seeing weigh-in on oil and small-cap stocks are now beginning to affect the broader equity market.
Concerning SPX directly, we can see a gradual weakening of momentum over the past year leading up to this point with a strong MACD divergence and an emerging RSI divergence.
And naturally, I suspect that this is emerging due to the small-cap rout which is in full swing and the emerging big-cap rout.
The outline I have put forward for oil may also have an impact here as it seems companies such as EXXON are displaying the same technical forms which companies in unrelated fields are displaying.
We may therefore be in the early stages of a marketwide risk-off.
Naturally, technical analysis has a certain failure rate, but the evidence I have collated here from a fairly diverse set of sources seems to add weight to the idea that we are nearing a bearish inflexion point within asset markets and should position accordingly.
Naturally, these have a certain failure rate (as do all technical analysis forms) however this does not mean that they should not be treated with caution when trading and it does not mean that the potential for a risk-off move should be dismissed.
Furthermore, there is a lot more evidence I can submit to back this idea up and this is what I shall explore within this piece.
Firstly, as we might be aware, many stocks on the NYSE are already in a state of decline.
This started with small-cap stocks such as GME and PLTR which we can see have had a rough time of it of late.
GME is down about 75%
PLTR is down about 75% over one year.
The broader Russell 2000 (RUT) has already dropped by around 15%.
As such, small caps have been suffering for months.
This is nothing new particularly. However, it seems that the context of this bloodbath of small-cap stocks could be part of something much broader.
In the past couple of weeks, we have observed large caps also starting to struggle.
FB is down about 42% from September 2021 to the present.
NFLX is down about 45% over the same period.
AMZN fell by about 25% over the last 3 months.
All of this is self-evident and raises lots of questions.
The most important being, "where do markets go next"?
Fundamentally, I do believe that bigger things are happening.
If we look at some of the less-prominent big-cap companies we can see what appears to be similar risk-off moves shaping up.
For instance, JPM seems to be showing signs of a rising wedge after an -18% fall.
INTC is currently undergoing a rising-wedge breakdown.
XOM appears to be forming a rising wedge after a parabolic move over the last 4 months.
AABV is undergoing a similar move on the fine resolution.
In summary, the rout which began in small-caps appears to be migrating outwards.
I am not sure of the cause of this yet. However... there are some risks on the horizon due to the FED ending its easing program and beginning fiscal tightening.
There is also a very bearish outline for oil shaping up which I have explored in further detail here.
I strongly suspect that the same forces we are seeing weigh-in on oil and small-cap stocks are now beginning to affect the broader equity market.
Concerning SPX directly, we can see a gradual weakening of momentum over the past year leading up to this point with a strong MACD divergence and an emerging RSI divergence.
And naturally, I suspect that this is emerging due to the small-cap rout which is in full swing and the emerging big-cap rout.
The outline I have put forward for oil may also have an impact here as it seems companies such as EXXON are displaying the same technical forms which companies in unrelated fields are displaying.
We may therefore be in the early stages of a marketwide risk-off.
Naturally, technical analysis has a certain failure rate, but the evidence I have collated here from a fairly diverse set of sources seems to add weight to the idea that we are nearing a bearish inflexion point within asset markets and should position accordingly.
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