Summary: Markets flipped decisively to risk-off this week, with major indexes breaking down from all-time highs with a confirmed bearish engulfing pattern, volume and internals turning negative, and nearly all sectors—including key economic bellwethers like transports and retail moving into a distribution phase. 

Risk On

• Value versus growth, while it deteriorated slightly, is still showing risk-on with value breaking under its 50-Day Moving Average while growth is still in a bull phase. (+)
• Seasonally, August remains a month with positive expected returns (except for small caps), though significantly weaker than earlier summer months. A modest risk-on reading. (+)

Neutral

• Foreign equities giving a mixed signal with emerging markets still in a bull phase, while more established foreign equities broke down into a warning phase. Leadership versus U.S. equities has been surrendered. (=)
• Soft commodities remain under pressure, and broke down hard this week, closing at the lower end of its trading range and in a bear phase. Copper came off hard ( -20%)over changes in Tariff policies.This rapid shift could happen to any market at any time based on shifting geopolitical pressures. (=)
• Gold is right in the middle of its trading range for the last several months and back into a bullish phase. Until it breaks out of this trading range, we are looking at this as overall neutral. (=)
• Bitcoin broke down, closing under several weeks of compression at the highs, but still in a bull phase overall. It needs to hold the $110k level, which it has been respecting for quite some time. (=)
• A Fed governor is retiring, giving President Trump more opportunity to appoint more dovish members and push rates lower faster. A drop seems to be in the cards with rates now trading above key moving averages across the entire yield curve. (=)

Risk Off

• Markets were down between -2.2% and -4.2% on the week with a confirmed breakdown of a bearish engulfing pattern which occurred at all-time highs in both the S&P and Nasdaq. This was one of the first risk-off patterns we have seen in the indexes in months. (-)
• Volume patterns were weakening and flipped into negative territory this week. (-)
• With the exception of Utilities, all sectors were down on the week, led by Transports along with Retail, which moved into a distribution phase and now down year-to-date. Indicating a slowing economy. (-)
• Looking at the global macro picture, volatility and short-instruments on foreign equities surged on the week. (-)
• As we have been highlighting the last several weeks, the weakness in market internals collapsed this week and is starting to reach moderately oversold conditions. (-)
• The new high new low ratio flipped negative across the board from moderately overbought levels. (-)
• With this weeks action, market internals as measured by our color charts (moving average of stocks above key moving averages) has decisively flipped negative with the exception of longer-term reading on the 200-Day Moving Average which is now neutral. Net, the overall picture is still risk-off on the short-to-intermediate term picture. (-)
• The Risk gauge swung to fully-risk off with the strength in utilities and treasuries. (-)
• As covered in last week’s video, volatility had reached oversold conditions and flipped this week with a massive confirmation on Friday. (-)
• The modern family broke down hard with regional banks breaking down below its 50 and 200-Day Movning Average, with transports breaking down even harder. (-)