Friday’s close of 7,718.60 left the S&P 500 Index (^SPX) roughly 1% below its record of 7,796 and still comfortably inside its bullish uptrend. The market consolidation this past week certainly weighs on investor sentiment, but on the surface, nothing is broken, observes Lance Roberts, editor of the Bull Bear Report.
Underneath, though, the momentum picture is turning. Furthermore, the risk/reward isn’t compelling.
From a purely technical perspective, let’s start with the primary oscillators. The 14-day RSI reads 55.7, squarely neutral. But that reading has cooled from the high-50s. That leaves the index with no oversold cushion.
Furthermore, the bigger tell is the MACD, which rolled over and crossed below its signal line. That’s the first real momentum warning the daily chart has flashed since the summer advance began. Neither signal is a sell trigger on its own. However, together they say the easy upside is likely behind us for now.
Lastly, overall market breadth tells the same story, but with a bit louder voice. Seven of eleven sectors fell in the last week, while the index finished flat. Discretionary, industrials, and materials led the retreat, while a narrow band of energy and megacap technology held the line.
Leadership is rotating rather than broadening, and that is exactly the kind of internal deterioration that tends to precede a real pullback.
