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- Theodore Hicks II, CMT, CFP, CKA Investopedia is partnering with CMT Association on this newsletter
- The contents of this newsletter are for informational and educational purposes only, however, […]
| Investopedia is partnering with CMT Association on this newsletter. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services. |
Russell 3000 Below the 50
In yesterday’s newsletter, I pointed out the fact that the Advance Decline Line for the Russell 2000 was in a declining trend while the price has been in an upward trend. That negative divergence is not always prophetic, but it sure is a warning. Monday, we see more action that is a bit concerning.
The first chart today is of the Russell 3000. Whether you use a simple or an exponential moving average, IWV closed below the 50-day moving average. By itself, this was not a significant failure. However, as I’ll show you in the second chart, it is certainly not good news.
Before moving on to that second chart, the bottom pane of this first chart shows us that about half of the US stock market has closed below their own 200-day moving average. Therefore, from a technical standpoint, more than half of the US stock market is already in a technical downtrend.
RSP’s Support Has Failed
One of the reasons why technical analysts mark up their charts is so that simple facts stand out clearly.
The first chart above was for IWV, the Russell 3000, which captures approximately 95% of the US stock market. However, like the S&P 500, IWV is cap-weighted. To get a better idea of the average stock, I like to look at RSP. This is the equal-weight version of the S&P 500. Every stock in this ETF is given the same weight in the calculation.
If you take a look at our second chart, you’ll see a few blue-gray rectangles that I’ve added to the chart. I add these rectangles to represent key support and resistance areas. Note that Monday’s action fell through one of these support zones. Again, it was not a dramatic failure, but it was a failure none-the-less.
Furthermore, not that this zone dates back to the high from November 11th of 2024. Therefore, over the last 12 months, the average stock in the S&P 500 now has a negative trailing twelve-month return. That is quite counter to what you here from the typical talking head in this industry.
One more point before moving on. Take a look at the bottom pane. That’s RSI and it is showing us that RSP is not over-sold. Put those two facts together … and don’t be surprised if we see further weakness.
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Are Bonds Stronger?
Our last chart of the day, well, I’d love for it to spark some chatter. You’re welcome to connect with me on LinkedIn. I’ll put this chart in my post for Tuesday and you tell me what you think.
This is a division spread chart. It simply takes one security and divides it by another. In this case, I’ve got RSP in the numerator and AGG, the iShares Aggregate Bond ETF, in the denominator. Generally speaking, the division spread chart is going to point to the stronger security.
So, here’s what I see.
After the early year selloff, equities were clearly stronger as denoted by the black trendline highlighting the trend was clearly going up pointing to the numerator.
But since July, this chart has gone sideways as denoted by the blue trendline. This indicates that there was no clear winner between stocks or bonds during this time period.
But take a look at the red trendline on the right side of the chart. That seems to me to be suggesting that bonds are becoming stronger.
Theodore Hicks II, CFP, CKA, CMT is the Founder, CEO & Chief Investment Officer of Hicks & Associates Wealth Management, an SEC registered investment advisor. Hicks’ rules-based asset management approach is focused on minimizing drawdowns while seeking to maximize gains. You can follow him on Twitter or LinkedIn.
Shared content and posted charts are intended to be used for informational and educational purposes only. CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. CMT Association does not accept liability for any financial loss or damage our audience may incur.
