Market is still trading in the range but internals have recovered a bit. Enough to reverse the bear course?
The credit spread below shows stabilization and a small uptick; however, the stock market is not confirming. The chart shows two other instances of credit spread leading the stock market down, recovering a bit but stock price fails to make new highs. Subsequently, the downtrend was quickly established for both. The lesson here is important. Unless stocks can quickly establish leadership here, we will likely start making lower lows.
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| Figure 1. Credit spread and stock market. |
Figure 2. Shows the ECRI weekly leading index. It continues to show weakness. It is worth noting that SP500 is a component of ECRI LEI and LEI is down even with SP500 holding up. If the stock market starts loosing altitude, the ECRI LEI will follow.
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| Figure 2. ECRI LEI and stock market |
Interesting. Hard to say what could cause a rally here but it is a possibility. In the meantime, the breath and momentum indicate higher probability for bearish scenario.
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