Thursday, March 18, 2010

New Rally High

The S&P 500 broke out and made a decisive new bull market high on Tuesday. The index is now trading at 1,165, higher than the recent peak of 1,150 reached back on January 19th. The breakout in large-caps was preceded by breakouts in mid and small-caps, as I noted last week. The pace of recent gains has been impressive, as the market has managed to close higher 19 out of the past 26 trading days since making a near-term bottom on February 8th, which is a remarkable feat. If the stock market is still to be taken as a real-time economic barometer (and some bears will argue that it shouldn’t), then its recent behavior should certainly be viewed as good news.

As we’ve been mentioning lately, most of the technical indicators that we follow are in great shape, indicating that the stock market rally continues to be well-supported. However, we’re also seeing signs that the market is overbought in the short-term, similar to the end of last year and beginning of this year just before it declined by -8%. So, we wouldn’t be surprised if another consolidation or correction occurs soon. But for now, the underlying trend of the market remains positive.