For those who dismiss technical analysis as “looking at doodling on charts” or a rohrshach test where “people can see anything they’d like,” guys like Jon Krinsky offer a continuous counter-punch with their insights based on the behavior of market participants and the flows of funds. TA is the study of the market participants themselves and what they’re actually doing, and it’s deeper than lines on a graph.
Here’s Jon’s look at why the market can’t seem to get anywhere these days:
It has been nearly a year since the S&P 500 last made a 52-week high, and last week did not provide much evidence that it is ready to break those highs anytime soon. The reason for the seemingly endless trading range has been the rolling bear markets across different industries and sectors. It began with Energy and Materials in late 2014, spilled into Industrials, Financials, and Biotech, and most recently Retail. While the SPX has only suffered a 14% drawdown peak-to-trough, 20 of 24 industry groups have seen at least a 15% drawdown. Just as one industry shows weakness, another steps up and begins to rally. This industry “Whac-A-Mole” has allowed the market to tread water over the last 18 months, despite significant weakness beneath the surface. Recent concerns include a pickup in volume among declining issues, renewed weakness in Transports, Semi’s, Biotech, and Retail. Those pockets of weakness, without offsetting bullish groups, should allow the SPX to re-test its 200 DMA around 2012. At the same time, the recent concerns have not gone unnoticed, as sentiment and transactional data have once again turned bearish. In summary, until more industries and sectors can begin to trade in tandem, we remain neutral on the next significant directional move.
I don’t think I’ve seen it put better anywhere else.
“Whac-A-Mole” Keeping Market Intact, But Some Concerns Re-Emerging
MKM Partners – May 15th 2016