Weekly Risk Signals

While the signals all flip to risk-on this week, this is mostly a function of the mega-cap growth rally and not a true reflection of the market as a whole. My unpopular opinion is that we ARE in a bear market. Nothing in the market breadth numbers suggests that the broader market is in a healthy place or rallying. Seasonality and market imbalance suggest the possibility of a big risk-off shift in June.

Even though the markets have begun reacting to the day-to-day machinations of the debt ceiling stand-off in Congress, investors seem to still be pretty complacent about the short-term risks involved. The lumber/gold signal is the only one at the moment urging caution. I remain convinced that this is the more important indicator for investors to be watching right now.

The utilities signal flips back to risk-off in a continuation of 2023’s choppy performance, but conditions overall are still signaling caution. All four of the major sectors are underperforming the market badly. Small-caps are still looking weak. Lumber looks awful. The advance/decline line, another measure of market breadth, is getting worse. On top of all this, the debt ceiling deadline is just a few weeks away.