Contrarian Perspective – March 9, 2020

 

Despite positive economic data on Friday, a jobs number beat, the equity market struggled. When good news fails to provide a boost, it emphasizes stress, and that is certainly reflected by our indicator, retaining bear market climate status. The Contragauge rose last week but not by enough, 180 degrees plus is needed to sustain upside confidence in equities. Monday’s reading, 139.7 degrees, climbed from the prior weeks close of 126 degrees. Rest of the week: Tuesday (154.7), Wednesday (164), Thursday (138.7) and to end the week, as it began, a reading of 139.7 degrees (Friday).

 


Indexes

The S&P 500 gyrated last week, across round number 3000, with Friday’s finish just to the underside. The 500-day exponential moving average has also served support recently and Friday’s close was just above that. Should weakness extend, the next downside level to watch awaits at 2600, a horizontal level, as well as a measured move of the overshoot from the 500-day average in December 2018. Should 2600 falter, next stop is the 2018 low at 2347.

 

 

The UK’s FTSE 100 has already breached its December 2018 low. Should the break hold over the next few weeks, a top formation would confirm, projecting further weakness, down to the 2016 low of 5500 at least.

 

 

The German Dax produced a definitive bearish 3SR with the failure two weeks ago to hold a breakout above the early 2018 peak. Thus, the breakout earlier this year, a classic bear trap. The sell signal projects a move down to the range floor, with a likely test of 10,000 thrown in.

 


ETFs

The SPDR Financial ETF shows a recently confirmed bearish 3SR, a false breakout of the peak from 2018. Move now projected down to the range floor at $22. The relative line ratio adds to the bearish outlook, a confirmed negative divergence, moving on Friday to its lowest level since 2013. Underperformance should continue.

Breadth for the S&P 500 financials group, percentage on P&F buy signals, shows the internal deterioration has further to slide before equaling prior historic lows.

 

 

The United States Oil Fund sank 9% on Friday. The major low from 2016 is yet to be tested. Therefore, more weakness likely. Big levels tend to be tested during hostile climates – as per the present.

 

The NYMEX Crude Oil chart shows the initial test last week of the late 2018 low, across from the same level as the 2017 low. $30 is the major downside level to circle.

 


Contrarian Stocks

 

Bank of America has dropped sharply over the past two weeks. The chart shows a failed breakout at the start of this year across from the 2018 peak. Weakness projected down to the range floor, pegged out by the December 2018 low. Should that shelf fail, a top formation would come into play, and that would imply a price move down to the 2016 low.

The BAC P&F chart triggered a Quadruple Bottom on Friday. That breakdown also activates a P&F 3SR. Earnings due April 15th.

 

 

Brighthouse Financial is collapsing from a bearish 3SR, a failed upside breakout in February, above the 2019 range. Weakness forecast to continue beneath the low from December 2018, after that, record lows, and of course no support to further cushion the price.

The BHF P&F chart displays a P&F 3SR. Furthermore, a High Pole, followed by a Triple Bottom and Double Bottom, all pointing to weakness ahead.

 

 

Arconic printed a record high in February, a move that cleared peaks from 2017 and 2018. The breakout failed to hold, resulting in a bearish 3SR. The signal implies a return to the range floor and that is all the way down to $15. Last week’s weakness also breached a yearlong up channel. MACD is not oversold.

The ARNC P&F chart recently printed a High Pole; a Double Bottom signal is three boxes away. The latter sell signal would also activate a P&F 3SR.

 

 

Goodyear Tire & Rubber has persistently trended south since the end of 2017, a bearish 3SR across from the 2007 peak. Recent market weakness has accelerated the downtrend, with the sell signal implying an eventual test of the 2008/9 lows.

The GT P&F relative chart provides a further reason to consider short positions, a strong, ongoing downtrend.

 

 

Marriott International is another chart breaking down fast following a bearish 3SR – bear trap break of the early 2018 peak. $100 is the immediate target, the range floor. As with the Bank of America chart, a top formation would confirm should the range floor give way, in this case forecasting a drop to the late 2016 lows, around $60.

The P&F chart for MAR shows the desired consecutive sell signals for a short position, two Double Bottoms in-a-row. A bearish P&F 3SR is also evident.

 

 

Raytheon has collapsed off its record high and the slide is incomplete. A bearish 3SR is confirmed, with a target to at least the December 2018 low of $144.27. Upside pops are best viewed as a selling opportunity.

The P&F relative ratio, RTN versus the S&P 500, shows a High Pole failing neatly into Bearish Trendline resistance. The underperformance trend of the past two years reasserts.