Markets are posting small gains which in themselves offer little, but over the course of days add up to a stealth rally. Indices remain above key moving averages, which runs in support of the market trend. Tags of 20-day and 50-day MAs have provided buyers an opportunity to buy the dips, but for how long?
On Monday the fell outside of its rising trendline in a slowing of this trend. The 20-day MA is still playing as support but it will take a test of the 50-day MA to assess how much real demand there is.
One thing this stealth rally had me overlook was the overbought tracker—the index is in the 10% zone, which means the index has extended beyond 90% of prior price action relative to its 200-day MA dating back to 1971. So a top is closer than some might think.
COMPQ Daily Chart
The is not as extended as the NASDAQ and therefore not as overbought. If the NASDAQ breaks, then there may be some rotation to Large Caps before it too heads lower.
SPX Daily Chart
Small Caps (via the iShares Russell 2000 ETF (NYSE:)) are a long way from overbought but are at least leading relative to the NASDAQ and S&P. As long as this scenario is maintained, then bulls will have something to work with. The breakout remains intact although trading volume is insipid.
IWM Daily Chart
While markets continue to move higher, the opportunities for buyers to get in would appear limited given the overbought status of the NASDAQ and (near overbought) for the S&P. The offers the best opportunity given the breakout, but there is a need to watch for the ‘bull trap’ should the breakout reverse.
Other than that, markets are perhaps ranked as a “hold” with maybe some profit taking recommended for the NASDAQ.
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