Chris Puplava | Sep 15, 2013 12:23AM ET
As mentioned in last week’s Market Bill of Health (here ), I said that we had likely reached “escape velocity” as more than 15% of the entire S&P 500 had seen a daily MACD buy signal over the last ten days and that the August correction was likely over. The S&P 500 continued on its bullish momentum and ended up nearly 2% on the week with the Dow logging in its best week since January. That said, while the August decline is likely over we have reached short-term overbought conditions and it’s likely the market stalls this coming week, particularly heading into a major FOMC meeting on the 17th and 18th.
S&P 500 Member Trend Strength
As shown below, the long-term outlook for the S&P 500 is clearly bullish as 88.0% of the 500 stocks in the index have bullish long-term trends, up from a reading of 84.4% three weeks ago. The market's intermediate-term trend also remains in bullish territory at a reading of 71.8%, up more than 10 points from three weeks ago. The market’s short-term outlook improved significantly from a reading of 22.4% last week, which put it deep into bearish territory, to the current 53.2%, which upgrades the market's short-term trend to a neutral-bullish reading.
The most important section of the table below is the 200d SMA column, which sheds light on the market’s long-term health. As seen in the far right columns, you have 89% of stocks in the S&P 500 with rising 200d SMAs and 80.4% of stocks above their 200d SMA. Also, all ten sectors are in long-term bullish territory with more than 60% of their members having rising 200d SMAs, with the weakest sector being telecommunications at 67%.
The Moving Average Convergence/Divergence (MACD) technical indicator is used to gauge the S&P 500’s momentum on a daily, weekly, and monthly basis. The big change last week was the daily MACD buy signal that was registered and suggested the market’s correction was over. Despite the near 2% rally on the back of last week’s recovery, the weekly MACD still rests on a sell signal.
The intermediate momentum of the market improved modestly to 33% from last week’s 28% reading.
The market’s long-term momentum remains solid at a strong 79% this week, though it has softened a little from the 86% reading seen on July 12th.
The improvement in the market’s short-term momentum (daily) is now spilling over into the market’s intermediate-term momentum (weekly) as the decline in weekly MACD buy signals has been arrested with a small improvement form 28% to 33% currently.
The current market leaders are industrials, technology, health care, consumer discretionary, and energy, as these five sectors have the highest percentage of new 52-week highs and very few if any new 52-week lows. Of note is that 4 of the top 5 leading sectors are cyclicals which shows strong risk appetites among investors.
Below is a multi-indicator chart of the S&P 500 that measures breadth and momentum. The two key portions I want readers to focus on are the second and third panels. These show that the S&P 500 has reached short-term overbought conditions (see red circles) which have marked either short-term tops or pauses in an advance and suggests the market may cool off a little this coming week to work off the overbought condition.
Summary
While we have achieved escape velocity there still remains some very big market-moving events that can change the character of the market on a dime, such as a possible Syria strike, FOMC September 17-18th meeting, Fed Chairman nomination, and debt ceiling debate. That said, given the market’s long-term momentum and trend remain positive, the risk of a bear market at this point seems remote.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.