This Secular Trend is breached

28 may 2020

SPY DIA UVXY The SPX trend had remained intact since this bull market started in 2009. There have been scary trend corrections but the main trend has been pointing at higher levels until now. For the first time since the index meaningfully breached the trend in an attempt to find support, which was touched t 2190 points, slightly above the Obama's bull market.

The momentum indicators show a negative divergence already, higher price levels vs lower indicator levels. Usually this signals a reversal. The levels it has reached are slightly above the previous peaks that would form a perfect head and shoulder, however, technically it shows the signs of a H&S. A center Peak with less momentum, a right Shoulder with even less momentum and a decay in volume. If this dreadful pattern is confirmed then it will not only breach again the support trend line, but also it will go back to the previous support test level at 2100 or even in an overreaction of the market it can go back to the support levels of 2012.

Let's remember that the stock market should be a barometer of the economy, which has not been the case. At this time the Stock Market has a disconnection with the reality we're going through, the unemployment is on the rise, and even though the "new normal" will call back employment, the social distancing, the lower overall income, the fall in the car industry and housing new permits as well as the lower manufacturing activity and the negative GDP are unequivocal signs of a weakening economy. When the market acknowledges this reality check it will wake up from the long irrational exuberance and will face a pretty harsh hangover.