Update 1 – Breadth of the US Equity Market

We wrote about two months ago: “The seven+ year bull market in US equities, which was mostly propelled by the high, Fed induced, equity risk premium, massive financial engineering, and innovation in fracking, is beginning to show signs of cracking…”

We also wrote: “We know from history that the first two cross-overs gave perfect signals, what efficacy the third signal demonstrates is an open ended question, and one we will be monitoring very closely…”

So, here is an update if you’ve kept along:

US Market Diary - UnsmoothedUS Market Diary

While the picture still looks muddy the point of inflection, the moment of truth, seems to be very close. It will soon be clear if the 1 year EMA of the new lows (depicted in red in charts above) will cross over the 1 year EMA of the new highs (depicted in green in charts above) invalidating our hypothesis that the previous cross over was a signal to sell short equities.

While our analysis will continue to evolve with data we maintain our supposition, as we wrote 2 months ago, that: “the writing’s on the wall; that a major turning point to this great bull market is close. While the high equity risk premium still favors equities, over bonds, the market breadth is weakening, and that’s usually not a good time to be long beta.”