On the Bullish Side
It has been a relentless 10 day assault by the bulls with the Dow, S&P 500 and Nasdaq 100 scoring new highs while the S&P 400 and Russell 2000 are fighting to lead. Europe remains near new highs and emerging markets have had a very strong run, much to my delight!
The New York Stock Exchange Advance/Decline line continues to see all time highs which has very positive intermediate-term implications for stocks as it is an excellent sign of liquidity in the system. Sector leadership has been okay, but certainly not great.
HOWEVER…
In the very short-term, there are several signs that the next 1-4% move should be down. Bounce back behavior in the banks and consumer discretionary sectors have not lit a fire under the S&P 500 like it normally does.
Although I think using volume as a primary indicator is a thing of the past, there are a few precedents for such anemic volume at all time highs, especially ahead of the big employment report on Friday. And speaking of that report, it’s unusual for stocks to run into the data at all time highs and then continue to plow higher.
Markets are expecting the European Central Bank to provide some kind of stimulus tomorrow morning and have rallied into that event. Finally, it doesn’t take a genius to figure out that stocks have been very strong over the past 10 days and clearly due for some kind of rest.
The take away is that while a short-term pullback should be expected, I would use it as a buying opportunity until proven otherwise. Dow 17,000 and higher isn’t too far away.
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