Can we just keep going like this.. like forever? No. At some point we will need to correct, but the safe trade is still on the long side. The odds of seeing higher prices are still greater then the odds of seeing lower prices. Drawdowns on the long side are more likely to turn green then on the upside. Yesterday we set new rally highs for 52 week highs on all three of the indices I track (RUT, NASD, NYSE). That is strength and making newer highs with newer highs is a very bullish momentum.
Around the world first:
Asia
Nikkei had a strong sell of into the close to put the Nikkei into the red down 1%. The Hang Seng and Shanghai also sold off during the same time period but not as strongly has Japan. This helped keep the futures from floating away after yesterday strong day.
Europe
Slightly green in Europe this morning after a gap down opening. The Eurozone has rejected the gap down and is now trading at day highs so the green is more bullish than it shows.
United States
Economic news
Looking for inflation and Jobless claims this morning.
Earnings
Breadth Charts
40 DMA % Index
Back to bull mode for this chart putting in a +6 today. The percentage of stock trading above their 40 DMA is up near the 86% level, now that is breadth. As that breadth falls apart and we make new highs, then the warning sign of trouble is in place. Until then the bulls rule.
10 Day High – Low
This chart only scores a +2 today and is showing some interesting divergences that need to be fixed today. While each index has made a higher high, unlike our 52 week chart below, the number of stocks making 10 day highs is lower than 5 days ago on both the Naz and the Rut, that is a divergence of weaker 10 day highs with higher prices. But those indices need to put in higher bars today.
52 Week New Highs
Strongest chart of the day scoring a +6. All three sisters put in both higher daily bars and day minus 5 bars. That puts this chart into the bullish perfect score. In addition all three put in the highest number of 52 week new highs since the beginning for the rally about 1 year ago.
Conclusion
The market is very bullish and very overbought. Yesterday was the first time I got some taste of being on the wrong side and run over. For the bears out there I sympathize. We can’t just keep going up can we? Something will change the momentum, healthcare, bad consumer report, end of OPEX. I am not sure what but we will have a corrective phase. Chances are though it will be short and shallow and not enough to recover for most of the bears.
I am looking for divergence and weakness. Today we see the 10 day high-low is weaker that we would like, but we can not paint the right side of that chart. We could get more strength today on that chart as the 52 week highs roll over. We will need at least 300 52 week highs today to validate yesterday’s high bar so we can watch our open and see if we get our 150 in the first 30 minutes.
$SPX
This is my SPX chart moving forward. 1170 is key area for new highs and 1141 is the key are for the bulls to hold should weakness come in. Anything less than an 1170+ close today allows weakness to creep in. I would expect some morning weakness with a bull rally into the close if we believe in the strength. A test around 1156 would be reasonable today although odds favor an NR7 day which would keep us in the 1160 to 1170 range.
Good luck.. hope to see you in the markets..
Marlin
