US equities closed mixed on Wednesday after a turnaround Tuesday rally. Industrials and Materials led while Energy and REITs underperformed. Treasuries were stronger with the curve flattening. The dollar was stronger versus the euro and pound but slightly weaker against the yen. Gold closed flat. WTI Crude finished down 0.3%.
The SPDR S&P 500 ETF (SPY) has pulled back from record levels as fears relating to the spread of the coronavirus remain elevated. SPY continues to outperform the broader Russell 3000 ETF (IWV) and Chaikin Money Flow remains bullish. The OB / OS Indicator is moving toward an oversold position as the fund remains above support in the $320 to $325 zone that we have been highlighting. With uncertainty currently at play in the market, we feel that the best strategy is to await oversold conditions while the market holds above key support levels before becoming more aggressive on the long side of the portfolio.
S&P futures are down 0.7% in early trading. Asian markets were weaker overnight with Japan, Hong Kong and South Korea all down more than 1% and Taiwan down nearly 6%. China’s markets remained closed. European markets are weaker. Treasuries are stronger across the curve. The dollar is weaker on the major crosses. Gold is up 0.5%. WTI Crude is down 1.7%.
Looking at Market Breadth
S&P 500 Breadth
The Advance / Decline Line for the S&P 500 has pulled back from record highs along with the index. Thus far, the indicator is tracking the movements of the market and remains in an uptrend. We are closely watching for a breakdown in the A/D Line that confirms weakness in the equity market.
The percentage of stocks trading above their respective 200-day moving averages fell to 71% from 80% last week and has moved below the breakout level. When this metric is above 60%, it is a signal that a healthy majority of stocks are in long-term uptrends. Despite the near-term choppiness in the market, this metric remains constructive from a long-term breadth perspective.