“The last few days saw the S&P 500 make new recovery highs from its Christmas low. The Index is now up almost 21% in less than three months. Other major market indices in New York are either in step (the NASDAQ and NYSE Composite) or slightly lagging (Dow Industrials and Russell 2000). Toronto and London are breaking out to the upside. Daily advance/decline lines for the S&P 500 and the NYSE are hitting new highs. The “2019 bear market” anticipated by the pessimists has been overwhelmed – as we expected – by a rejuvenated bull market.
The S&P 500 has reached just above 2,820, the level which provided overhead resistance during four previous rally attempts. We have highlighted the importance of this level for several months. The probe above 2,820 will gain greater significance if the Index manages to stay above this level for the next week or two. This would be an important foothold for the bulls, would discourage the bears, and probably would stimulate more short covering. The move above 2,820 would also eliminate the negative pattern of lower highs and lower lows that has been in effect for nearly six months. It also brings into view a possible large “reverse head and shoulders” formation on the daily chart, with potentially significant upside targets.
The S&P 500’s current dilemma is that it has been almost too successful. It has advanced very far, very fast. The rally is confined to a narrow and sharply-rising up trend channel. While the S&P 500 could continue to track higher within this channel and move quickly towards the all-time high, it is more likely that such a rate of change will prove unsustainable sooner rather than later. The flattening of rising internal momentum, the decline in the percentage of NYSE stocks trading above their respective 50day Moving Averages in the last few weeks, are early indicators that the uptrend is losing some power. At some point the S&P 500 will moderate its advance and break the lower trend channel line. We suggested two weeks ago that “a period of pause, minor pullback and consolidation of gains is both timely and healthy,” and we continue to expect this outcome.
In sum, the S&P 500 has spent the early months of 2019 driving up through overhead obstacles and so far has done this easily. This has expended a great deal of energy and now the S&P 500 faces the final upside challenge between 2,820 and the all-time high at 2,941, less than 4% away from current levels. Although buying power is considerable, it is unlikely that the S&P 500 is going to be able to charge directly into the 2,900s without some multi-week period of choppy sideways action and/or a minor pullback. Our view is that (a) there is plenty of time left on the bull market clock and (b) a pause is needed very soon to refresh the bull and avoid build-up of excesses.
This bull market eventually is going to go higher, perhaps much higher. A little rest now will reap dividends – and further capital gains – later. Strong acting stocks will be candidates for purchase when a minor correction occurs” (19-Mar-19)
Nasdaq alarm sounding for the first time in 10-years Andrea Kramer at Bernie Shaeffer’s The Option Advisor, Cincinnati, OH www.schaeffersresearch.com
“The Dow Jones Industrial Average (DJI) is sitting on a loss for the month of March, recently dragged down by the Boeing (BA) 737 MAX 8 fallout, poorly received Nike (NKE)