Highlights:
- Extreme breadth in short and medium-run
- Indices pulling back from resistance
- Watching trend-line and horizontal support around 1970 in S&P 500
The market is pulling back today, with both the S&P 500 and Dow futures rolling over from resistance (~2000/17000 area, 200-day MAs near), with the laggard Nasdaq 100 leading the way lower.
One of the simplest market breadth indicators on our board is the percentage of stocks trading above their 10-day moving average on the broad-based New York Stock Exchange. The number of stocks has been stuck in overbought territory for nearly three weeks now. Looking back over the past five years, there are no other instances where it has stayed above 70% so persistently without dipping. Even during other periods of strong market advances the figure usually backed off into the 60s before pushing back above the 70 threshold and the even more extreme 80 mark, which is where the indicator has been treading most of the time recently.
Looking at a longer-term input, the number of stocks greater than the 50-day moved to nearly 80% yesterday. This is the highest level since October of 2013. So, indeed the push higher is strong, and much stronger than anything we have seen in a while. As we’ve been discussing for the past week, strong, persistently overbought markets in the very short-term tend to be a good sign looking out over the intermediate-term. However, they can act as a warning sign in the short-term that the market is vulnerable to a setback or consolidation phase at the least. Especially when resistance is at hand.
S&P 500 Cash w/%NYSE
What we will be watching as the market pushes lower is how the S&P 500 acts at its first lines of support – trend-line off the 2/11 low and horizontal support around 1970. If the pullback is to be a shallow one, which given recent momentum very well could be the case, then the S&P shouldn’t decline much further than these support levels. This will help alleviate overbought conditions, possibly setting up for a move above resistance soon.
S&P 500 Hourly
A little room to the down-side does exist for shorts until support is met, but keeping in mind the overall trend and momentum, it wouldn’t be a bad idea to think about nibbling from the long-side if support starts holding. At this time, keeping all trade ideas very short in duration until further clarity.
New to trading? Check out this guide and see what traits successful traders generally have in common.
---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter @PaulRobinsonFX, or email him directly at instructor@dailyfx.com
