The S+P 500 and the Dow both closed the week at new all time highs. 1775 in the S+P 500 was key and it reacted very well. The next measured move upside target will now take the S+P 500 up to 1833 in the near term. In the long term I still maintain the market is getting quite overextended but another 3-4% upside is realistic.
The Volatility Index (VIX) remains very low, each time this year that the VIX hit 20 it became a reliable buy signal. A VIX below 20 generally suggests that pullbacks are short lived and shallow, more of the 4-5% variety, which is what we have seen.
The cumulative advance – decline line continues to show bearish divergences. This indicator has not moved much higher since the May highs meanwhile the S+P 500 is roughly 6% higher above it’s May high. This means the advance has been occurring with fewer participants and is usually a precursor to a significant correction. However this is not a timing tool and these divergences to go on for awhile before it eventually settles itself out.
Three of the nine sectors within the S+P 500 also made new highs on the year. Those being Financials, Energy and Health Care.
The yield on the ten year continues to hold above 2.5% after nearing the 3% area. It has completed a correction about the size of the one that took place early this year. The next upside comes in at 3.35% and downside support stands at 2.25%.
In conclusion, a look at year to date performance among asset classes. Obviously it’s been a tremendous year for equities with Small Caps and Large Cap Tech leading the way with above 24% returns. Emerging markets are the laggards, with growth and “Taper” worries weighing heavily.