Bulls Continue Advance

The S&P 500 finished another week up. After the week’s price action settled, the S&P 500 was up 2.06%. The week started strong and ended strong. Price gapped higher Monday morning and finished on the high for the week and just about the high for the day on Friday. A gap is when prices open outside of the previous day’s price range.

One of the most important questions when it comes to a gap in price is whether or not it is exhaustive (meaning a pending reversal of price action) or is it a break away gap (meaning a signal of strength and continuation of trend). The later in a trend a gap, the more likely it is a sign of exhaustion. We don’t know if this is the case, but we are coming up on yet again another area of resistance which is the all-time high of the S&P 500.

Momentum and breadth increased over this past week although it’s not quite as strong as it was back in February of this year. Momentum is how fast and how long price moves in a particular direction. Breadth is the number of stocks participating in the same direction of a given group of investments. You want both of these to be positive if you are bullish and negative if you are bearish. In order for the advance to continue, we want to see breadth continue to increase or at least stay consistently high.

Last week we ended up purchasing the Brazilian Small Cap position we talked about. It triggered the buy after the buy signal which is our ‘go’ when it comes to getting involved. All the equity positions were up for the week which includes the dollar. The fixed income positions were down slightly. We don’t have any purchases planned for this week as we’d like to see a pull back towards the bottom of the range for better risk/reward ratios.

This current leg up is certainly getting a little long in the tooth so it will be an interesting week as we will see if the bulls can hold on to their power. Most of the stops we have are a good amount down and price targets are a good clip away as well so I doubt we’ll see much action in regards to buying or selling. Have a great week!

Adam Straseske, CMT

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