At these heights, I feel hesitant to argue that there aren’t any technical warning signs for equities. But that’s the case: none of the measures of trend, momentum or internal data that I monitor for the S&P 500 have turned bearish… yet. So once again, we’ll likely see dip buyers emerge.
Here are three stock market measures that I am monitoring:
- Trend – The record highs this week confirmed a crowd willingness to buy at higher prices, affirming the cyclical bull market off the 2009 low. The 20-week simple moving average has been rising, uninterrupted, since August 2012. Price is above that level now (the average settled at 1926.2 last week). This gives dip buyers some room to work with before any real technical damage (or fear) settles in.
- Momentum – I apply a fast (two-period) and slow (13-period) moving average to the default 14-period relative strength index to measure momentum. This indicator is neutral on daily and weekly charts. It’s overbought on the monthly chart but doesn’t show any topping patterns or divergences with price. Keep in mind monthly momentum can stay overbought for an awfully long time before a market peaks.
- Internals – Record price highs this week were confirmed by new highs in S&P 500 cumulative advancing issues (add the number of index components that rose at the end of each day and track the running total). Cumulative up volume (add the volume among rising shares each day to the running total) has been moving sideways to lower since February. That stays in the back of my mind but the indicator hasn’t shown any great predictive value for some time. A look back at the number of 52-week highs in the S&P 500 also shows little predictive value.
Bearish pre-opening indications today in futures markets comes after overbought conditions in momentum on the S&P 500 60-minute chart warned of an elevated risk of profit taking. And volume over the past few sessions has been extremely low, signaling little conviction among the bulls. As such, it wouldn’t be surprising to see stocks come in, possibly paring a fair amount of the gains achieved since August 7th. But with the cyclical bull trend affirmed, any decline will likely be treated as an opportunity for dip buyers.
No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
