Bank of America Analyst on Terrible Market Breadth and 2018 Analogies

Market Vulnerability and Support Levels

• 📉 The S&P, NASDAQ, and Dow sell-offs have broken through medium-term supports that guided the market for the past five months.
• 📌 Key levels to watch are the 50-day moving averages and recent trailing lows, around 6550 for the S&P 500.
• ⚠️ Breaking these levels could signal more tactical pain ahead for the market.

Weak Market Breadth and AI Dominance

• 📊 Market breadth looks terrible, with the AI boom carrying the S&P 500 while fewer stocks participate.
• 📈 The New York Stock Exchange advanced-decline cumulative line has not made a new high in months, indicating narrow leadership.
• 📉 The percentage of S&P 500 stocks trading above their 50-day moving average has been declining, showing weak underlying support.
• ⚠️ This narrow support structure makes the market more vulnerable to sharp sell-offs, as seen on Friday, and suggests a need for tactical hedges.

Historical Analogies and Correction Risks

• 🕰️ A relevant analogy is the 2015-2018 period, with the current market potentially mirroring late 2018.
• ⚠️ In 2018, there was an early year drawdown, a rally to new highs, and then a significant year-end correction of about 20%.
• ⚡ The current cycle, compared to 2015-2018, has seen a larger early-year drawdown and a stronger rally to new highs.
• 📈 The rule of alternation in technical analysis suggests an increased risk of a significant correction (e.g., 10%) into year-end or early Q1.

High Velocity Moves in Gold and Silver

• 🚀 Gold and silver have seen high velocity moves, but chasing them now is not recommended by Bank of America.
• ⚠️ Charts with a monthly RSI above 90 are considered parabolic, not sustainable trends, indicating a high likelihood of correction.
• 💡 The strategy suggested is to trail stops and ride existing trends as long as possible, rather than buying into already extended assets.
• 🔍 It's often easier to find new opportunities where the monthly RSI is moving from 50 to 90, rather than trying to catch a parabolic move that's already peaked.