The market needs more bad economic news in order to break through overhead resistance. Bad news is once again good news until Greece and China re-enter the news cycle. The market would like to see the Fed push back interest rate hikes. Continued weak, but not too weak, economic news creates this expectation. While the Fed would like to raise rates, it is obvious they are becoming concerned that the temporary soft patch in the economy is not so temporary. So the rate hikes remain “data dependent”.
We see three indications of weakness in the following chart. First the bull market’s long term trend line (bold red line) was penetrated and it will not be returning to that trend. Second, the intermediate price channel’s (two dotted red lines) lower channel was recently penetrated although the current rally places it back within the channel for now. And finally, the market is now moving sideways with overhead resistance near the recent market peaks as depicted. The lower green line shows where “unusual” strong market support came in and prevented much more technical damage from occurring.
Will the market decisively breakout above overhead resistance? Not without more volume and participation. In the chart below we compare the NYSE Advance Decline Volume to the S&P 500 index to get a feel for the broader market participation. The S&P 500 index could tag a new high, but if the rest of the market continues to lag then its sustainability would be suspect. And the current Advance Decline Volume Index was helped by the fact the NYSE was closed for half of a significant down day (8 July) which would have extended the red line lower otherwise.
Investors need to keep a close eye on whether the market can decisively breakout of overhead resistance or breaks out to the downside below market support.
Smart Investor members can access additional member only content at Smart Investor Interim Updates.
I have added several different membership options for those who are looking for a wingman or a lead pilot in navigating the current market. Our goal is to keep you focused on what matters when it matters so you can make better informed allocation decisions. Invest smart.