Stocks continue to defy gravity, as the S&P finished today at a 17 month high.
Amazingly, the S&P has completely retraced it’s most recent drop from January. The markets swung from quite oversold, to quite overbought, within the span of a month.
Once again, we learned (the hard way) not to bet against the S&P when it’s north of the 200 day MA.
(Source: Yahoo Finance)
Where to from here? Well markets are overbought, and stocks have been rallying largely on low volume, so it’s hard to see them going much higher before we see some sort of pullback.
Of course I’d have said the same thing a week ago, so take it for what’s it’s worth.
But I think the interesting thing to watch will be the conviction the upcoming pullback displays.
China, one of our favorite leading indicators, is NOT following the S&P’s lead, however.
China on the brink – a potentially bearish divergence.
This could be a significant bearish divergence. The posterchild of the Reflation Trade, running out of gas!
As we always remind ourselves, the last time the markets crashed, China peaked before the US. History could be repeating itself here, as the US markets hit new highs, while China languishes below it’s October highs.