While there is continuing reason to believe that the foundation remains in place for further upside to this bull market, cracks are beginning to emerge in the underlying technical foundation. Earlier in the week I highlighted the primary Trumps trades being in the beginning stages of unwinding. Now there are very obvious signs that primary leadership for the market, at the very least, needs a prolonged period of rest.
Below is the chart for the SOX (Semiconductor Index), which has been a bastion of absolute strength and leadership for the entirety of the ascent from the February 2016 lows. The trajectory off those lows, for the first time, has been compromised on a weekly basis.
click chart to enlarge
When you look at the current market, it's becoming obvious that investors are having a difficult time rectifying increased exposure with a near non-stop symphony of scary headlines. Whether increasing geopolitical risk on virtually all fronts or increased domestic fiscal policy risk, the reasons to sell are numerous, while the reasons to buy are scant. That very dynamic, however, could end up being the bulls best hope. Fear remains too high for any substantial pullback, UNLESS a geopolitical event or overwhelming signals of an economic slowdown interfere with the sentiment dynamic. That sentiment dynamic is best illustrated by the long-term moving averages of the combined put/call, which are telling a story of absolute disbelief in a market at record highs.
Whether further upside awaits or a breakdown is imminent, the markets are no longer on the solid ground that allowed for studies like this to emerge in Q4 of last year.
It's a coin flip going forward.
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