The market declined heavily on Friday likely setting up for more downside ahead. We had already begun to notice that mega-cap stocks were beginning to weaken. You can see this on the relative strength line of the SPY versus equal-weight RSP. The relative strength line has been in decline. You’ll notice that when the mega-caps underperform, the market tends to as well.
A look at the Magnificent Seven ETF (MAGS) has been showing a declining trend all year long. We have flat bottoms and a declining tops trendline and that forms a bearish descending triangle. Not only is the chart pattern unfavorable, but so are the indicators. The RSI is now in negative territory and the Price Momentum Oscillator (PMO) has topped beneath its signal line. Stochastics also look terrible as they decline in negative territory below net neutral (50). Relative strength against the SPY is also in decline.
Conclusion: The market is already in decline and it doesn’t appear there will be any help by the mega-caps, particularly the Magnificent Seven which are in decline overall based on MAGS ETF. The market struggles when these big guys don’t perform so we have downside pressure to add to an already weak looking SPY.
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Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)