Mid-Term Breadth Signal Turns Bearish

14 out 21 Sectors/Indices are now in a Short Term Downtrend.

Breadth Studies & Trend Studies:

The deterioration in breadth studies has continued since our last update. As mentioned previously, we were nearing a negative mid-term breadth signal, which was confirmed by yesterday’s close.

Here is the chart of the mid-term breadth indicator alongside the S&P 500. While major indices like the S&P 500 and the Nasdaq-100 are holding up well, largely due to NVIDIA's very positive earnings reaction, most other indices and sectors are underperforming. They have started to break down, transitioning into a short-term downtrend.

Currently, 14 out of 21 sectors and indices are in a short-term downtrend, highlighting the weak breadth and divergence occurring even as the S&P 500 and Nasdaq-100 reach all-time highs. Strength is primarily concentrated in tech-heavy or related sectors, utilities, and gold miners.

As seen in this trend study, the breadth weakness is confirmed by the Russell 2000. Meanwhile, the VIX remains in both short-term and long-term downtrends, trading at very low levels, indicating a lack of fear in the market at the moment.

Conclusion:

A negative signal in mid-term breadth studies warrants caution. When this signal is active, the market typically becomes choppy and volatile at best, and more often undergoes a significant sell-off or prolonged correction. Consequently, bullish trades are likely to have lower odds of success and be less frequent.

I recommend reducing exposure, trading less, and keeping positions smaller until this signal turns bullish again.

That is all for today.

Best regards,

Victor Riesco, CMT