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US indices gave back all of their prior week's gains. For the week, SPX, DJIA and RUT fell 2% and NDX lost 3%.
Europe was also down more than 2% and emerging markets lost 1.5%.
Let's review the recent market action.
In December and January, SPX lost 4-5% on four different occasions. In between, it gained the same amount. Each potential break out and breakdown was reversed.
Then in February, SPX rose three weeks in a row, gaining more than 7%, during which it never once touched its rising 13-ema. Instead of consolidating and then adding to those gains, it fell the next three weeks in a row.
But there was no follow through to the downside either. A week ago, SPX reversed and gained nearly 3%. But instead of adding to those gains, it promptly fell 4 days in a row this week.
After all of this, SPX is exactly flat from December 1st nearly four months ago. There is, in short, almost trend to speak of.
Our view a week ago was that a true test of market character had arrived. Aside from RUT, none of the other US indices were overbought. If there was upside ahead, the indices would show strength by becoming and remaining overbought. Instead, the markets fell hard. This would seem to indicate that the ranged market environment of the past four months will continue. You can read a similar assessment by Brett Steenbarger here.
So, what happens next?
First of all, recognize that this is a market that reverses hard just when it looks like it might break out higher and breakdown lower. There were no visible extremes at the end of last week, but they could present themselves within a day or two.
Of the US indices, RUT looks the healthiest; it was the only index to make a higher high. Its 50-dma is rising and its RSI is oversold, a set up for a bounce each time since early December (green lines). But the big 2% loss on Wednesday suggests it could easily drop to its 50-dma (1216) which is now at the top of the 1 year trading range (yellow). That should be solid support.