Technically, the S&P 500 Index looks strong. The price trend, as measured by the 13/34-Week MA (posted below) turned positive in late March 2016. My favorite “weight of evidence indicator,” the CMG Ned Davis Research Large Cap Momentum Index, is nearing a buy signal.
Further, the “Don’t Fight the Tape or the Fed” indicator is in a favorable equity market signal and Volume Demand (buyers) continues to be greater that Volume Supply (sellers). You will find the charts below.
On the fixed income market front: High yield remains in a buy signal, as does the Zweig Bond Model. The Zweig Bond Model suggests longer-term high quality bond market exposure is favored over shorter-term exposure.
Sentiment suggests a short-term sell-off as investors are overly optimistic. The most logical area of price support (call this a correction/buy-the-dips target) is at 2120. That is about 56 points below the current level or the “neckline” in the chart that follows.
It feels much like the late 1990s to me. In 1997, the markets were overvalued yet the final peak did not occur until March 2000. We have no idea how the current rally will play out. Here is what happened to the DJIA, S&P 500 Index and the NASDAQ since 2000.
The market is expensively priced, so stay nimble and diversified. Please be mindful of the low forward 10-year return probabilities as well as aware of the high degree of risk that comes with buying expensively priced assets.
For charts, analysis, and commentary see the rest of the story in Trade Signals: It Feels Like 1997 Absent the Cab Drivers Speculating on Stocks | By Steve Blumenthal |
The current opinions and forecasts expressed herein are solely those of Steve Blumenthal and are subject to change. They do not represent the opinions of CMG. CMGs trading strategies are quantitative and may hold a position that at any given time does not reflect Steve’s forecasts. Steve’s opinions and forecasts may not actually come to pass. Information on this site should not be used as a recommendation to buy or sell any investment product or strategy.
