The Day of Reckoning is Getting Closer

Although Friday's bounce in equities relieved some of the oversold bias, the trend remains down and indicators continue to point toward weakness. Today, it seems that "everyone" is a technical analyst, pointing to multiple "head and shoulders" index patterns as well as scary warnings such as the "Hindenburg Omen." With the plethora of fear-raising technicians, one could suspect a continuation of Friday's rally at least into month-end (Tuesday). Waning, directionless trading for the balance of the week as the long weekend emerges feels likely.

Peter Stolcers, who we follow regularly and has significant street experience is looking for a "major market decline that will start this week and continue throughout September."  We consider this a bold call but will not take it lightly as Peter has a great penchant for calling the shots in equities.

Most of our charts in the Market Tour remain the same, despite the bounce and recovery to major support levels. However, we have seen these bounces before, as they appear to be yet another reflex rally during a bear market. Of our many indicators, only VIX saw a modest improvement, as Friday's rally pushed its RSI back below 50 (a modestly-bullish signal). Runner-up is our NYA McClellan Oscillator, which pushed slightly above its EMA 20 (although on the downside, NYA Summation Index has fallen below 400 - a bearish signal -- while a bearish cross below its EMA 20 has ensued).

Should a selloff transpire, we wonder if Financials (XLF) will outperform this time around (beware, they still will fall with the market, just less so).  Looking back at weekly charts over the past 5 years, XLF is showing positive price relative performance in its RSI (higher RSI bottoms as price has fallen), and would be a likely contrary candidate to outperform (as it has so vastly underperformed on price since the April peak).

Treasuries took a big hit as the "risk-off" trade flipped over on Friday. With the crowds beginning to speak of a "bond bubble," once cannot ignore the possibility that a modest correction won't be followed by a continuation in the uptrend in Treasury prices. It appears that the Fed will keep a lid on rates for a while, which may help to sustain the relative strength in this asset class.

Click here for the updated Market Tour on Stockcharts.com.