The S&P 500 has been cruising to new highs with relative ease. Each time the S&P 500 has corrected, it has only consolidated sideways. The pattern has been for it to breakout to new highs, consolidate sideways, then breakout again to new highs. This past week signaled the 5th time the S&P 500 has broken out to new highs from a relatively flat sideways movement since November of 2016.
So how long can this continue? Nobody knows for sure, but we do know that each breakout has gotten a little bit weaker. Look at the chart below and notice the labeled boxes. Each area highlighted is the zone in which the S&P 500 consolidated after a breakout. You can see how the boxes have gotten closer over time and the last one even over lapped. This signals weakness in the trend.
Just because there is weakness in a trend does not mean it is over, but it does give pause. As markets move higher, investors that got in early curtail their risk. The most effective way to do that is to take profits. If the S&P 500 drops quickly back into the past trading range, it could give the bulls concern given it is so late in the move. We want to watch to see if it can stay above the 2480 levels.
Market breadth did not increase heavily with the breakout. It would have been better for the bulls if there was a large spike in breadth akin to price action. The oscillators did increase enough to get into overbought territory. This has signaled the top of the trading range the last several times, so it makes it a little more interesting to see if the S&P 500 can hold on to it’s recent breakout to a new high.
It is a pretty big economic week as the FOMC Meeting Announcement is scheduled for Wednesday. The FOMC is not expected to race the Federal Funds Rate. The announcement comes at 1:00 C.S.T. Housing Starts are also on the docket for Tuesday at 7:30 C.S.T. Those numbers have been soft the last 3 of 4 reports and Econoday forecasters are expecting higher numbers than the last report.
Overall the trend of the S&P 500 is up on the shorter and longer-term. We are watching the 2480 level closely to see if it can hold. We did end up getting involved with Australia. If you want to know the details, the link at the beginning will bring you to the video with details.
by Adam Straseske, CMT