Date: June 28, 2018

Window Beginning to Open for a Low, BUT…

As I wrote twice this week already, I don’t think the pullback was over just yet. My original thought was it was a 5-7 day affair which has a low in place by next week in the 23,500 to 24,000 range for the Dow. The market is entering that zone now and puts today on watch for a bottom if we can get some early selling to be thwarted by mid-afternoon.

While the Dow and S&P 500 continue to be the weakest major indices, the S&P 400, Russell 2000 and NASDAQ 100 have seen more straight line declines. All are just about to enter zones where the bulls should begin to fight a little harder. Those three charts are below.

If I had to look at how or why I could be wrong, semis couldn’t make new highs this month when the NASDAQ 100 did. That’s a non-confirmation or negative divergence. Additionally, the decline in the semis has been more severe.

Adding to the semis problems, the banks have really struggled  and need to stabilize sooner than later. The stock market is unlikely to mount a significant rally without the banks and the semis together although losing one wouldn’t be the death knell.

Let’s see what today holds. Very quietly, utilities have rallied all month and 8 straight days, very much unlike how they behaved during the February decline. With staples and REITs holding their own, it gives me some pause about what I see as very strong economic numbers in Q2 and Q3.


Paul Schatz, President, Heritage Capital