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Every time there is a down move, there is some narrative of what was to blame.  I've heard many reasons for the blame for the recent equity markets weakness.  There are a few people suggesting it was "The Nunes Memo" and others blaming the volatility ETN's.  Most people are blaming the rise in interest rates as the reason for the weakness.  I would have to agree this makes some sense yet, rates have been moving higher since September while stocks in the US and other areas in the world ex Europe have been strong.  When there have been "risk off" periods bonds have typically rallied so this time has definitely been different.  For months I've been highlighting the relative weakness in European indexes and the recent breakdowns.  Some of that could be the strong Euro but recently as European markets have collapsed, so has the Euro.  So it's back to rates rising in Europe for the blame.   

Maybe it's so obvious that nobody wants to say it.  People have been crowded into everything with the backdrop of extreme sentiment and overconfidence with continued earnings growth and economic strength.  I believe the stock market is a barometer and not a thermometer.  As I said a few weeks ago, the peak in "good news and earnings" was here.  The weakness seen around the world in stock and bond markets will be felt with future earnings and economic data.   

The steepness with the drop in the equity markets around the world is quite concerning.  Market corrections should not just be measured in how far down but in time.  A couple weeks to unwind the excess isn't going to do it.  There have been several downside DeMark exhaustion Countdown red 13's in Europe (DAX, SX5E) but as seen on the DeMark screens not enough on individual stocks.  I thought we would see a little strength with the weaker Euro but we haven't yet a further concern.  In Asia, there are downside Countdowns in progress and the Emerging Markets ETF's and Indexes are breaking to new lows well under the Grantham call.  In the US, there have been downside breadth surges that could be considered capitulation but what if these surges are the start of a longer period of weakness?  I have carefully explained how a down five wave sequence will play out for all to understand.  There will be bounces along the way and many of them sharp, so continue to remain cautious with a larger percentage of cash and to tighten stops on anything you are holding or trading long.

Notable:

US Markets - Sentiment remains very weak, sideways action is needed
European Markets - Concerning me how they can't catch a bid after downside exhaustion
Asian and Emerging Markets - Green Setup 9's could see a bounce for a few days. Watch the Yuan! 
Let's take a deeper look at rate on various time frames
Gold and Gold Miners Update

SPX bullish sentiment fell back down yesterday to 20% from 30% but above the 18% a couple days ago.  Sentiment will continue lower to under 10% as I have expected however I've seen some rather ugly drops with bullish sentiment under 10% - August 2015 and January 2016 fell hard AFTER sentiment hit those levels.  

SPX couldn't continue it's bounce and considering it closed on the lows yesterday was a good clue.  This first wave doesn't have to stop here, it can go lower despite some of the short term oversold oscillators. 

A lot of sentiment polls have come down (notably the Daily Sentiment Index I use).  The Ned Davis Crowd Sentiment Poll did hit an all time high but has not come back that much.  It's a mix of five different components that they made me swear to secrecy never to tell.  (it was over a few beers so it's not that dramatic)   Thanks to NDR - a huge inspiration for all my work

On my note yesterday, I talked again about the huge inflows from January into ETF's and funds.  What I forgot to mention was the entire amount of inflows into SPY for January was taken out this week.  Here's the cash levels for Vanguard clients.  There is cash on the sidelines... but just the least amount ever recorded.  

The PPO (Percentage Price Oscillator) now has every sector and index below the 10 day on average by 4.8%, below the 20 day by 5.7% and nearly everyone below the 50% with an average down by 3.5%.  Recall I showed this PPO when just a few sectors started to move under the 10 and 20 day.  And when the average above the 50 day was 5.5%, I stressed that was about as good as it gets.  If you are on Bloomberg and want this, IB me.  

The European markets have been much different than other global markets in the past 6 months!  The recent drop actually triggered a downside exhaustion but I'm concerned a secondary downside Countdown is starting.  

Euro bullish sentiment is at 60% moving lower from the recent high of 90%  Watch all the crosses vs USD

Shanghai Composite now has a downside green Setup 9 and should bounce tomorrow but if not a new red Countdown will start.  

Here's an old negative catalyst potentially coming back to add to reasons to blame on market weakness.  In August 2015 this was blamed for some rather sharp downside action in equity markets around the world

EEM has some support at 46 and is on day 8 of 9 with a downside Setup.  The red upside Countdown stuck on 11 of 13 will be nullified tomorrow with the green 9 Setup completion.  

EFA MSCI EAFE ETF is at support and does have the green Setup 9 today. 

Here's the 2/10 yield spread on day 9 completing a green Setup count.  There is a pattern to the 9's.    Follow along...

Hey ,

I missed the entire Bitcoin run up because I was skeptical of a non regulated security that was up more than any other security EVER in history I was lumped in with people who "just didn't get it".  Furthermore, I didn't feel comfortable hearing that there were 98% of the ICO's (initial coin offerings) that were "likely frauds" and were touted by rappers and athletes.  I was skeptical that I saw this guy on a bunch of promoted sites that touted "riches" if you followed his advice.  This is his  "Shocked Face" with all the recent crypto carnage. Naturally he's "buying on the way down and will on the way up"   If you bought at the highs in any of them, you need at least a 100% gain to break even!

Bond sentiment is at 12% and down from recent high of 21% but above the low of 7%.  A period of choppy action might be in the cards unless the recent high breaks out

The TLT ETF weekly time frame finally achieved a downside exhaustion red Countdown 13.  The daily has a green Setup 9 today.  

The monthly of the TLT has potentially a much deeper downside target suggesting much higher yields but I also believe it could be a bit choppy vs straight there.  

The US 10 year yield monthly chart has had an upside wave 3 target of 3.07% for a while as I've shown this one in the past.  Wave 3 people... of 5 so longer term we will see higher yields.

The 30 year daily chart also has an upside green Setup 9 and it's been pretty good at inflection points

Hey ,

I missed the entire Bitcoin run up because I was skeptical of a non regulated security that was up more than any other security EVER in history I was lumped in with people who "just didn't get it".  Furthermore, I didn't feel comfortable hearing that there were 98% of the ICO's (initial coin offerings) that were "likely frauds" and were touted by rappers and athletes.  I was skeptical that I saw this guy on a bunch of promoted sites that touted "riches" if you followed his advice.  This is his  "Shocked Face" with all the recent crypto carnage. Naturally he's "buying on the way down and will on the way up"   If you bought at the highs in any of them, you need at least a 100% gain to break even!

Gold Futures couldn't make it to 13 as it stopped on day 11 of 13.  It's now on day 8 of 9 with a downside Setup so tomorrow could negate the red upside Countdown and might see a bounce start. 

The December entry in gold was text book with the downside exhaustion signal combined with extremely low sentiment.  When GLD had it's upside exhaustion 13 sentiment had moved to 91% and I took profits on the long trade even with the Gold Futures upside exhaustion pending.  

Hey ,

I missed the entire Bitcoin run up because I was skeptical of a non regulated security that was up more than any other security EVER in history I was lumped in with people who "just didn't get it".  Furthermore, I didn't feel comfortable hearing that there were 98% of the ICO's (initial coin offerings) that were "likely frauds" and were touted by rappers and athletes.  I was skeptical that I saw this guy on a bunch of promoted sites that touted "riches" if you followed his advice.  This is his  "Shocked Face" with all the recent crypto carnage. Naturally he's "buying on the way down and will on the way up"   If you bought at the highs in any of them, you need at least a 100% gain to break even!

Gold Miners GDX has been a disappointment nearly giving it all back.  The hope is the downside green Setup can bounce like it did the last 3 times on the bottom.  I didn't sell this (I wish I did) and if it breaks the entry level I'm stopping out flat.  

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