Major Trend Index

Performance discontinuities across some of the major indexes are striking. For example, while the NASDAQ Composite is up 12% YTD, the NYSE Composite is down 1%, despite those strong A/D readings for the latter index. Today’s action leaves a similar gap between the Russell 2000 (up 10% YTD) and the DJIA (unchanged).

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The decline in the attitudinal work was fairly broad based, with a few indicators even moving back to maximum negative readings.

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A sharp loss in the Attitudinal category reflects declines in all major groupings of sentiment measures, ranging from investor opinion surveys, to fund flows, to option trading activity.

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Supply/Demand work experienced the week’s largest category loss and reflects declines in the Smart Money Flow Index (which tracks opening and closing action in the DJIA) and in our Institutional Accumulation measure, which compares up and down volume to prevailing price action.

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The daily advance/decline numbers suggest the recent bounce has been broad, but analyses based on the 52-week highs and lows (including various versions of the “High/Low Logic Index”) are flashing warning signals similar to the ones seen in the fall of 2007 and summer of 2015.

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Last week’s rally succeeded in driving up one of our shortest-term measures of investor optimism, while corporate tax cuts have helped generate the highest readings in the 33-year history of our earnings “breadth” work.

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An important momentum sub-model, which considers relationships among rates-of-change for the major indexes, slipped to neutral after having been bullish since the spring of 2016. And while this model is whipsaw-prone, it’s generally on the right side of significant market breakouts or breakdowns.

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While we’ve emphasized several negative developments within the MTI’s Economic composite in recent months, not all of the evidence leans bearish. Outside of the oil patch, commodities have struggled to make a clear breakout, possibly reflecting the short-term bounce in the dollar.

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Earnings-related measures have remained healthy, but the more heavily-weighted components related to monetary and interest rate trends continue to migrate towards the negative side of the ledger.

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While we’ve always emphasized the importance of the “weight of the evidence” over the individual MTI factor categories, it’s worth highlighting some key differences between the 2018 correction (which saw a loss in the S&P 500 of 10.2% at the February 8th closing low) and the 2015-2016 S&P 500 correction of 14.2%.

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It’s mystifying that the Momentum work has not deteriorated further during the course of this correction. Despite the -9.3% S&P 500 loss through Friday’s close, the net category reading remains at a moderately bullish level.

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Based on data for the week ended March 30th, the Major Trend Index recorded a second consecutive reading in negative territory.

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The Supply/Demand work plummeted last week with three unrelated “smart money” measures all showing an institutional urgency to sell into the market weakness. Such behavior is atypical of this generally “countertrend” crowd, and a decisively bearish sign.

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We’ve always emphasized the “weight of the evidence” rather than individual MTI category developments, but we have to concede we’re troubled by the steady deterioration in the two categories that propped up the MTI during the bull’s rally off the February 2016 lows: Momentum and Economic.

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The Momentum category rebounded 49 points last week, reflecting small gains across most of the quantitative chart scores…

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The week-over-week decline was the result of big losses in Supply/Demand and Momentum/Breadth/Divergence categories. The Attitudinal category also lost ground.

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