Pausing at the Highs

Last week, the S&P literally paused, closing essentially unchanged from the prior week’s finish. Well, actually, the index slipped a tiny 0.02% but this change is practically meaningless.

Where does this leave us?  The S&P is still pinned up against all-time highs. The same can be said for the NASDAQ and the Dow. Meanwhile, high yield spreads have collapsed back down near five year lows; this means that high yield bonds are extremely over-priced.

Stock market volatility continues to cling to multi-decade lows. The VIX index spent most of last week below 10, a reading seen less than 5% of the time….in other words a very rare occurrence.

So technically, the S&P remains at some of the most extreme overbought levels ever seen in this index—it’s hugging the upper Bollinger bands on the daily, weekly and monthly charts and it’s well above both the 50 day and 200 day moving averages. At the same time, momentum remains favorable, even though it’s not as strong as it has been in many other periods when prices climbed upward so strongly. On the other hand, one of the biggest concerns coming from technical analysis is the fact that the recent surge in prices has come on declining volumes. Almost all market peaks in the past have occurred on declining volume; while declining volumes doesn’t guarantee that big pullbacks must follow, this situation should at least give investors and traders some reason to proceed with caution.

Finally, the US economy continued to stumble forward. Last week’s reports were mixed to weak… has often been the case for the last several years…..and there’s nothing on the horizon to suggest that the economic growth rates are about to accelerate any time soon.

Let’s see what happens next week.


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