Stocks are off to a fast start in 2018 (understatement).
The momentum surge in January has been powerful and produced a strong up-trend.
Though it’s not recommended to fight the trend, it’s worth noting that several indicators are pointing to exhaustion. Market breadth has been lackluster and implied volatility has held up quite well. As well, the VIX has been coiling and technically looks constructive to think a big move in volatility is approaching. As well, a couple of different cycles suggest some kind of trend change for stocks between now and 1/29.
That said, it’s been tough to pound the table about selling this rally given how bullish the trend has been. So we’ll need to see an actual reversal itself before we get too bearish, preferably with a move down under 2825.
Other concerns include lagging Semiconductors and Industrials. Note that Treasury yields have been bullish but are showing signs of exhaustion approaching 2.70.
Given the better than expected earnings, positive sentiment on stocks and the economy, and the fact that geopolitical risks have died down, there are no obvious roadblocks to further gains. WHICH IS PRECISELY THE TIME TO PAY ATTENTION.
For now, the up-trend is intact. But I’m watching it carefully.
S&P 500 Futures Chart Spotlight
As mentioned, we will need to see trend line break to argue that the market is turning. Â We are up more than 6% in January.
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Author has positions in 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.
