Will Weak Closes Drag Stock Markets Down? by Jennifer Thomson, Gavekal Capital Blog

Our Gavekal Capital Net Close Indicator is designed to help get a sense of investors’ conviction level. It is calculated by subtracting the value of the Weak Close Indicator from that of the Strong Close Indicator, each of which counts the number of times (over the previous six months) that stocks closed in the bottom (or top, respectively) quartile of their daily trading range. Typically, the Net Close Indicator expands during a rising market (as strong closes dominate) and falls as prices decline. Currently, however, the Net Close Indicator appears to be struggling to move up from levels last seen during 2011 and, before that, 2008– all while the S&P 500 remains within 5% of the highs it reached in 2015:

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The large gap between index price levels and our Net Close Indicator is not unique to the U.S., either– other major stock markets around the world are exhibiting varying degrees of internal weakness.

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The concern, of course, is that these divergences are not resolved by strengthening stock market closes (a welcome sign of improved investor confidence) but, rather, by pullbacks in the indexes themselves– a decidedly less envied outcome.

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