From the desk of Tom Bruni @brunicharting

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Valeant Pharmaceuticals (VRX) has fallen roughly 90% from its August 2015 highs, but is now potentially setting up for a counter-trend rally.

Structurally this stock remains in a strong downtrend, but is now testing long-term support near 25-27. Prices first tested this level in March and April of this year, rallied briefly, but are now slightly undercutting those lows as momentum attempts to put in a bullish divergence. If prices are above 27 on a weekly closing basis, that would confirm the bullish momentum divergence and failed breakdown.

One of the most valuable tools we have as technicians is the ability to go through every single stock in the Dow Jones Industrial Average and every sector and sub-sector in the S&P500 so that we can weigh all of the evidence. It might take some time, but I promise you that there is no better way to gauge the strength or weakness in a market, than by going through them all. Since most people don't have the time to do this work as regularly as I do, my annotations and notes can easily be referenced in the Chartbook.

Today I wanted to share some of my conclusions after running through all of the Dow Components and S&P Sectors on both weekly and daily timeframes. This analysis consists of over 120 charts and all of them have been updated today in the Chartbook.

When we talk about the most important developments in the world today, we need to define who we are and why this is the case for us. We are market participants who have only one goal: to make money in the market. There are many others out there who are very loud, but are not here to make money in the market. Instead, they get paid to sell banner ads and tv commercials. This is the group that tends to lag price and prefers to focus on what is in the "news". Since price leads the news, these headlines and conversations typically show up well after the fact.

I think today we have a great example of this scenario and very clear conflict of interest.

The debate about whether Amazon is in the Technology Sector or the Consumer Discretionary sector is really a pointless one. It isn't anyone's opinion that Amazon is in the Consumer Discretionary Sector. Amazon IS in the Consumer Discretionary sector. In fact, it represents close to 11% of the S&P Consumer Discretionary Sector Index. Amazon could double tomorrow or go to zero and it will have no impact on the Technology sector. Do you know why? Because it's not in the technology sector. It's in Consumer Disctretionaries.

Anyway, the point is that Amazon has been carrying Discretionaries because of its enormous weighting. But take a look at what the Discretionary space looks like if you take this market-cap weighting out of the equation:

The Stock Market has gone no where in 6 weeks since we originally wanted to take profits on all of the long positions we were laying out in late January and early February. During this period of no advance, we have seen a massive deterioration in market breadth with fewer stocks participating. Important sectors like Technology are breaking down hard, which is further evidence that taking profits in late March was the best course of action.

At this point, we now want to err on the short side and aggressively be positioned to take advantage of more selling to come in stocks.

As we all know, the S&P500 is a cap-weighted index. In other words, the largest companies by market capitalization (AAPL, XOM ,MSFT, FB etc) represent the largest percentage weighting in the index. The bigger the company, the more important it is to the index. There are 10 (9?) sectors in the S&P500, and Technology is by far the largest one. Therefore one can argue it is the most important one. We can make an argument that Financials are America's most important sector, but for the purposes of this conversation, let's agree on the fact that Tech is the largest and therefore the most important of the bunch, representing around 20% of the entire index.

Today we are looking at the S&P Technology Sector ETF relative to the S&P500. When this chart is going up, Tech is outperforming S&Ps. When this chart is falling, S&Ps are outperforming Tech. Take a look at this chart. Technology is literally crashing vs S&Ps:

From the desk of Tom Bruni @BruniCharting

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There has been a lot of talk about how the recent rally has been accompanied by a dramatic improvement in market breadth, so I took the time to see if the data I track supported that conclusion.

The first study on the major S&P 500 sectors and US Indices was completed by calculating how far the indexes were from their 52-week high compared to the average component in the index.

Contrary to popular belief, we're not here to be right. We're only here to make money. As market participants, we're not journalists or economists or side analysts. It's their job to be "right". So when they're wrong, they like to call it a "revision". But when we're wrong, it's called "a loss". See the difference? So since we actually put money to work and take real risk, we need to be responsible with how much risk we take. Therefore, we need to make sure that the potential reward far exceeds the amount of risk being taken at a given time.

Today we're looking at a good example of this favorable risk/reward scenario in a sector that I think gets crushed going forward:

From the desk of Tom Bruni @BruniCharting

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The semiconductor index has likely caused both longs and shorts a bit of angst over the past several weeks as it failed to make any directional progress near the top of its 10-month range of 560 to 680. Analyzed on its own the index is providing little conviction for the bulls or the bears, but a look at the individual components may provide some clues regarding the next directional move in semiconductors as a group.

The daily chart provides a tactical look at the 560-680 range that prices have been trading in for roughly 10 months now. Whether this range will resolve to the upside or downside is unclear, but the presence of a flat 200 day moving average, a bearish momentum divergence, and prices consolidating in the direction of the underlying trend may all be early warning signs of a move lower in the short-term.

With the deterioration in market breadth throughout the entire month of April and bearish momentum divergences showing up in some of the most important stocks, sectors and countries in the world, I think some exposure on the short side here is warranted.

Today we're going over my favorite short of all the Dow 30 Components.

When the major U.S. Stock market indexes are making new highs, you want to see the list of stocks making new highs increasing along the way as well. This had certainly been the case throughout February and March, but has come to a complete halt this month. Looking across the board, the S&P500, Dow Jones Industrial Average, Nasdaq 100, Russell 2000, Mid-cap 400, etc have all made new recovery highs over the past couple of weeks, since our epic bottom in late January/early February. The problem is that 1) all of our upside targets have now been achieved where we wanted to take profits and 2) breadth in the market now stinks.

Utilities have been the monster in the U.S. Stock Market this year. While some sectors, like in the metals or energy space, have bounced back from horrific downtrends, others have kind of just muddled around, like Financials for example. Utilities, on the other hand, have been an absolute beast. They've been rallying since the beginning of the year and this month hit new all-time highs. Moving forward, I think the risk vs reward in this sector favors the bears.

Here is a chart of the S&P Utilities Sector Index rallying this year to get back up towards its early 2015 highs. Meanwhile, at the new all-time highs this month, momentum, as defined by a 14-week relative strength index, put in a lower high. This bearish divergence and failure to hold on to those all-time highs should be the catalyst to send share prices in utilities tumbling in the coming months: