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Equity markets are nearing another important inflection point at support levels, as short-term momentum indicators become oversold. In last week’s note, I discussed the importance of short-term momentum indicators to help track the 2-4 week shifts that capital markets regularly move through.

After surging from oversold levels on May 15 to overbought levels on June 8, most stock markets have been in choppy sideways trading ranges, but they remain above key support near rising 50-day moving averages. As equities have pulled back, daily momentum indicators have been steadily moving from overbought levels in early June back to oversold levels heading into the end of this quarter.

My expectation is that markets are likely to carve out short-term lows in the coming days, but it is premature to state a bottom is in place yet. Short-term downtrends remain in place from the June 8 rally high and will need to be reversed to the upside to state the bottom is in.

The financials will be one of the more important barometers for the market overall in the coming weeks given it has been leading to the downside from the June 8 and is now absorbing the fallout from the Fed’s decision to cap dividends and buybacks. (For more see page 12.) Similar to most cyclicals, the financial sector...

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