Short-term Risk Level: 6
Bottom Line
The S&P finally broke above widely-watched
resistance. Plus, we have mostly positive seasonality for the next week
and a half, and price and breadth behavior that suggests higher prices. A
few of our shorter-term guides are overbought, which normally merits at least a
pause in the rate of advance.
(Yet Another)
Follow-Through Day
Regarding the "kickoff plus follow through"
studies we've been looking at this past week, today marked yet another upside
follow-through day.
There were only 7 other occurrences since 1928
that managed three consecutive follow-through days. None of them fell back
enough to set a new low within the next month. Or two months. Or
three months.
Every one of them tacked on at least +6% during
the next three months, and they averaged a maximum gain of +10.7%. Again,
very positive.
Breadth Momentum Is Another Good
Sign
Breadth has been similarly impressive - it isn't
just a few stocks dragging the market higher. At least 67% of all volume
has flowed into stocks that were positive on the day for each of the past four
days.
While that may not seem very impressive, it has
happened only 7 other times in the past decade, and 36 times in the past 50
years.
While market performance going forward was
somewhat mixed, this kind of momentum didn't go away easily. The S&P 500
closed higher at some point during the next week 35 out of the 36 times.
Lagging NDX Hasn't Been A Big
Deal
Partially because of Oracle's impact on the Nasdaq
100 earlier in the week, the S&P finished the week with a gain of +3.7% but the
NDX managed a gain of only +2.2%. This is highly unusual.
Since 1985, there were only 4 other weeks when the
S&P gained at least +3.5% but the NDX gained less than +2.5%. Two of the
instances were positive over the next 1 and 2 weeks, and two of them were
negative. There was no discernable pattern on any time frame (but it was a
common question). The weeks were 1/15/98, 6/13/97, 3/17/00 and 5/8/09.
Even reducing the divergence to get more data
points, the future results were very inconsistent. We've discussed in the
past how big divergences between the S&P and NDX have been predictive, but
that's really only been when one index or the other is at a new high or new low
while the other is far away. That's not the case currently.
