Equities—Still In Uptrend

The S&P500 dipped a fraction of one percent last week (0.14% to be exact) on light volume. Volatility was unchanged at the end of the week, from the prior week’s end. US equities appeared to be treading water during most of last week’s trading.

The US macro is still not getting any better. In a light week of announcements, PMI services disappointed. But ISM services beat estimates. International trade results met expectations. Productivity fell, which was a huge disappointment. Initial jobless claims slight beat consensus estimates as did wholesale trade. All in all, there was no sign that our economy is on the verge of anything resembling robust growth…..fully five years after the Summer of Recovery began in 2009.

Technically, stocks are still overbought, as they continue to hover near the upper Bollinger band on both the daily and weekly charts. Bullish sentiment is still super high, while bearish sentiment is ultra-low. This means US stock market investors and traders are overly bullish. Meanwhile, several indirect indicators are flashing warning signs. MACD is weakening on the daily charts, and so is RSI. The percent of stocks trading above their 50 day moving averages is much lower than it was near prior price peaks……while prices are now still very close to those peaks. All this suggests that the US stock market “internals” are weakening while prices are still near peak levels.

All that said, the US stock market….especially the S&P500….is still in an uptrend. And this uptrend must be respected until such time that (and for whatever reason) it breaks down.

The bottom line is that prices on the S&P are trading above the 50 day moving average and more importantly above the 200 day moving  average. And just as importantly, the 200 day moving average is sloping upward.

So until this 200 day moving average turns down, it is much too early to call an end to this bull market run. Yes, this run is getting very long in the tooth, and yes a serious correction is very much overdue, but until prices drop below the 200 day moving average and decisively enough to stay there long enough so that the 200 day moving average turns down, it would premature to call an end to the bull run.

Does that mean that you should boldly stay long with most of your money invested in the S&P? Of course not. Just because an avalanche doesn’t occur on the day, week, or month that you think it will (based on 100 years of historical data and analysis) doesn’t mean that conditions are not dangerous!

It only means that one should not rush to sell absolutely everything and start to massively short this market.

Not just yet.

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