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Laurence Balanco, CMT of CLSA says a breakdown in CMX copper & further reversal in the Philadelphia Semiconductor Index suggests a classic growth scare is underway in global equity markets. Historically copper and the semiconductors index have been viewed as forward-looking barometers for global economies on the back of their sensitivity to ebbs and flows in global industrial activity.
The combination of both copper and the SOX rolling over should now have an impact on the resilient markets in the US, Australia, and India as they realign with the regional markets that have already seen corrections unfold off their Q1’21 peaks.
Talking about S&P 500 Laurence Balanco says there are warning signs provided by slowing upside momentum in S&P 500 with a narrowing breadth reading, widening credit spreads and rising VIX has seen some hesitation in the S&P500’s uptrend this week, resulting in a break of the 20-Day moving averages.
The next major event should be a test and break of the 50-day MA, which is currently at 4,340 to signal a deeper setback over the coming weeks back towards the market’s 200-day MA and May lows at the 4,015-4,029 area. Two consecutive closes below the 50-day MA would confirm the breakdown and the setup for a deeper decline in the coming weeks.
Commenting on India on the recent report he added Nifty managed to set a new all-time high but the daily momentum remains below its January highs, leaving a divergence in place that implies the Nifty’s uptrend is maturing and becoming vulnerable. In addition to slowing upside momentum in the Nifty, it’s worth noting that both the NSE small-cap and mid-cap indices have also formed price/momentum divergences with both indices now on the cusp of breaking below trend support provided by their respective 50-day moving averages.