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Global Macro: Equity Finally Showing Technical Weakness to Match Economics

Andrew Sachais

NEW YORK ( TheStreet) -- This week has been highlighted by intense volatility and more conviction, as seen in the volume, on down days than up days.

Equity markets have witnessed bargain hunters come in and buy on dips in the past. But with the worsening global picture, this phenomenon looks to have subsided. This means that falling price action is more pronounced, and prices close lower at the end of sessions, absent bottom feeders scooping up the carnage.

Equity traders are spooked by the rout commodities have been taking, signaling that the global economic picture cannot get by on merely optimism any longer. Oil, gold and copper have all taken beatings this week due to weak data coming from China and the United States, and intermarket charts are showing that equity is finally taking the hint.

The chart above is of an S&P Equal Weight ETF over SPDR S&P 500 . This ratio shows the breadth of price movement in equity markets. The SPY is a great benchmark for U.S. equities, and it is important that broad participation of individual stocks occur for movements to be seen as legitimate.

Since May the equity picture looks to have deteriorated. Although not seen in a pullback of actual indexes, it does explain the heavy volume on down days viewed recently. The ratio is on the verge of a breakout lower, finally taking into consideration all the macro variables and poor earnings data. Look for equity to take its lead from this breadth indicator.

Another equity chart of interest is of Russell 2000 Index Fund over Russell 1000 Index Fund . This ratio takes a basket of small-caps over the largest companies in the U.S. Small-caps have seen a massive relative selloff recently, influenced by a turn towards defensive positioning in investors' portfolios. These investors are trying to avoid getting caught on the wrong end of trades.

Lastly, above is a chart showing, again, the cautious positioning of the U.S. equity market. The chart is of Dow Jones Select Dividend Index Fund over S&P Equal Weight ETF . This indicator highlights the flow of funds into a select dividend index.

These companies are viewed as more defensive, and alongside the receipt of a dividend, should not get battered as much as higher volatility stocks in an equity pullback. The charts above signal a cautious market position in the face of a deteriorating economic climate, and gives justification for further risk asset pullback.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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