BraVoCycles

NYSE Common Stock Advance-Decline Line vs Market Rotation

· You might remember that in late May I speculated that we could see some rotation from the mega-cap stocks and semiconductors into the broader market that could last a couple of months.

· It did happen.

· You could see that from early June until mid-August the A-D line was trending higher while the SPX was essentially moving sideways, and NDX (not shown) was slightly weaker.

· The A-D Line has been declining since mid-August and broke below its 200D MA, which usually implies it might touch, or worse, the 400D MA.

· The rotation into the broader stock market from mega-cap stocks started to fade in mid-August.

· Lately, on multiple occasions, the broad market weakness, often when oil prices were up, was masked by strength in several mega-caps.

When these mega-caps correct, the market may experience additional downside.

SPX-to-VIX Ratio

§  How to use SPX/VIX?

§  In range markets, it pinballs between the Keltner channel boundaries (or Bollinger Band boundaries), flagging overbought/oversold conditions and potential reversal points.

§  In strongly trending markets, it moves between the mid-channel and outer boundaries, and such behavior is an indication of a strong trend, similarly to when RSI is embedded in the oversold/overbought range.

§  Right now, the ratio is headed toward the upper Keltner.

§  Since we are still in a sideways market, I expect the ratio to reverse from the upper Keltner or from not much away from it. This should align with a short-term SPX reversal.