Bloomberg recently interviewed the chief technician of Bay Crest Partner’s, Christian Bendixen and the firm is now saying the S&P may have already peaked in 2010. Their primary concern is something that has been an ominous sign for several weeks now – the conviction high volume selling and low volume lack of conviction on buying days.
According the Bay Crest the selling in 2010 has a markedly different tone than the weak, often low volume sell-offs that took place during the 2009 run-up. Bendixen elaborates:
[the selling is] “much more impulsive, much more powerful on the downside. High volume on down days and low volume on up days is a sign of distribution that we’re going to head significantly lower.”
While the technicals worry Bay Crest they say the market isn’t just broken from a technical perspective. Bay Crest says the fundamentals are now broken as well. The low risks of sovereign debt, continued stimulus and the U.S. housing market recovery have all been flipped on their heads this year:
“All the assumptions made in 2009, fundamentally, are up in the air right now.”
Specifically, in terms of the technical outlook, Bay Crest sees three reasons why the market could have already peaked for the year. The combination of low volume, multi-month declines and a broken rising wedge (see chart below) has them convinced that the market could decline substantially from its peak and won’t make a new high all year.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.