Short-term Risk Level: 6
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.
Regarding the "kickoff plus follow through"
studies we've been looking at this past week, today marked yet another upside
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
Every one of them tacked on at least +6% during
the next three months, and they averaged a maximum gain of +10.7%. Again,
Breadth Momentum Is Another Good
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
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
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
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.