US Equities - Stuck In A "Wedge" - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

US Equities – Stuck In A “Wedge”

Couple of quick thoughts on the US stock market:

1) Volume is low. A combination of summer vacation time and investors who are waiting to see what happens next are keeping the market stuck in this “wedge” like pattern. However, once the pattern is broken, equities will most likely trade back to recent lows or recent highs – depending on which direction the pattern breaks.

2) Divergence on MACD may be signaling a lower market.

Divergence 101 from Investopedia:

Definition of ‘Divergence’

When the price of an asset and an indicator, index or other related asset move in opposite directions. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators, such as the money flow index (MFI), are moving in opposite directions.


3) Divergence in the VIX showing that the VIX (aka the fear gauge) may start to rise:

4) Few “Buy” signals. Some of the models I use in the ARTAIS fund have been giving a buy signal. These models are based on historic volatility patterns and the ratio of buyers to sellers on strong market days. However, more aggressive models are still recommending cash. As a result, ARTAIS has a small allocation to US equities at this time.

As the summer months are traditionally slow in terms of stock market activity, I expect this “wedge” pattern to continue for most of the summer. Most likely activity will pick up as we get closer to the November elections.

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