Back to a focus on technicals

 As at the time of writing, the White House and the Republican-led House haven’t come to a debt ceiling deal yet, though both sides are getting closer to a deal. But you only die once, and focusing on the fear of a catastrophe isn’t very useful. Hedging only works if there is someone you can collect from on your hedge, and obsessing over a U.S. default only gets you so far. Instead, I will focus on getting back to the technical structure of the market by assuming that all parties agree to step back from the brink.

From a longer-term perspective, the narrow leadership of the S&P 500 is disturbing. Remember Bob Farrell’s Rule #7: “Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names”. As the S&P 500 tests its 50 dma, the equal-weighted S&P 500, the mid-cap S&P 400 and the small-cap Russell 2000 have already violated their 50 dma.

How much does bad breadth matter?

The full post can be found here.