The stock market is officially tired of worrying about the latest crises around the globe. On Friday, the S&P 500 essentially recovered all of its post-quake losses. The last three days of buying featured low volume (no news there), but the index was still able to hurtle over the presumed resistance at the 50-day moving average (DMA) with ease.
*Chart created using TeleChart:
While stochastics are overbought for the S&P 500, T2108, the percentage of stocks trading above their respective 40DMAs, is trading at 61% and not quite overbought. Since I still do not expect the market to sustain overbought T2108 levels anytime soon, I am inclined to think the market’s advance will at least stall out here, if not get reversed altogether – especially since the index is back to the thick trading congestion formed after February’s strong tumble from multi-year highs. My strong caveat is that since the S&P 500 cleaved right through the 50DMA resistance with ease even as crisis headlines arguably worsened and housing economic numbers printed at historic lows (I thought it would take POSITIVE catalysts to get the index over this level), I have to guess that the odds of a reversal are not as high as I would normally expect.
I think this observation from Peter Worden on “The Worden Report” (posted in Telechart 2000) from Thursday sums up the current trading pretty well:
“This bounce in stocks is really starting to confound me. The stock market continues to climb what would seem to be an insurmountable wall of worry given the variety of potentially bad news out there. Nonetheless, yesterday’s intraday reversal provided upside follow-through today as the market continues to distance itself from the lows of March 16. One can still argue this bounce is simply a partial (as in about two-thirds) retracement of the drop from the February highs, but arguing with the market can prove costly. This has been especially true for the short-sellers, who have obviously in some cases been forced to cover positions, thereby adding more buying power to the bounce.”
I would add that the looming prospect of the end of QE2, the Federal Reserve’s latest program of quantitative easing, is one more macro-factor that does not seem to bother the market one bit…is the market expecting QE3 to follow soon thereafter? Then again, who would have expected America’s companies to achieve record profit levels at a time when unemployment remains stubbornly high, about two years after a near financial meltdown, and complaints about economic policies are about as high as they could be from all political persuasions?
Be careful out there!
Full disclosure: long SSO puts