Thursday, June 18, 2015

"Major" Equity Index Breaking Down......ANOTHER PESKY FACT!

"Major" Equity Index Breaking Down

For all of the longer-term, ancillary red flags and concerns that have materialized in the latter portion of this cyclical bull market , bulls have had the same response: price is all that matters. It appears to us, however, that a great many bulls preaching "price patience" have failed to recognize one thing: there is already evidence of a breakdown in prices. The "stock market" consists of many segments, not just the S&P 500. So it depends where you are looking, how thoroughly you look and whether or not you report the truth or an agenda based lie about what you found!

For example, the Dow Transportation Average and Dow Utilities as well as some other broader indices have already begun to exhibit price breakdown characteristics (i.e., lower highs and lows, drops below key moving averages and support levels, etc.) Today's Chart brings another example of an index potentially breaking down: the NYSE Major Market Index (XMI).

The XMI is an index of 20 of some of the largest blue chip industrial stocks in the U.S. market. So it isn't exactly the broadest index. However, it is influential, in terms of its constituents' big "name" influence as well as their "weighty" impact on many of the averages. 

Why are we concerned about the price action in the Major Market Index? Here's a list of some of the reasons.

The XMI is actually DOWN -2% year-over-year. Therefore, despite the proximity of the popular indices near their all-time highs, there has been stealth stagnation for some time in portions of the market.

The XMI was unable to make new highs along with some of the other indices in April and March. In fact its only new high of 2015 came on March 2 – by .019%. This also means that the index is making lower highs.

The XMI has broken down below its post-October UP trendlines, both the steeper one originating at the October lows as well as the shallower one connecting the series of lows since. For now, this is only a short-term development. However, it is a negative price development that could lead to further price deterioration.

The XMI has already failed in tests of the underside of both of the aforementioned broken trendlines. Therefore, it had a shot at turning into a "false breakdown", and failed that.

The XMI made a new 4.5-month low recently. Not only did it close below last week's low, but it has also closed below the short-term lows from March and April. This places a series of lower lows on the chart. And while it could always reverse course higher again, it now is in a "definitive" downtrend, on a short to intermediate-term basis.

These developments in the Major Market Index represent unequivocally negative price action. So for those preaching patience in deploying defensive measures until price breaks down, let this serve notice. The stock "market" is not merely one index – there is already ample evidence of price breakdown taking place.

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