Kimble Charts: S&P 500
By Ilene
Chris Kimble's chart below shows the price of the S&P 500 over 14 years with the occurrences of new lows exceeding new highs, within 2% of all-time highs, marked with orange diamonds. At the highs in 2007, new lows surpassing new highs coincided with the top of the market. Three times since then, the S&P has been within 2% of all-time highs AND new lows have exceeded new highs. (There's an overlap of two orange diamonds in mid-2013 but it's difficult to see on the chart.) The S&P 500 has been moving higher. The day before yesterday, new lows exceeded new highs again.
One instance is not a correlation, nor do we know whether there is any true correlation buried in the data. However a series of new lows outnumbering new highs during a run to record highs suggests underlying weakness in the markets. At the least, we can conclude that many stocks are not participating in the rally.
What else is concerning? On a technical level, Chris notes: "On the S&P 500, 161% is heavy resistance, based upon "THE" 2007 highs and 2009 lows — important dates in history. 2061 (161%) is not a price point where bulls want to see any weakness. The S&P 500 closed at 2,040.24 yesterday. Currently, it is trading at 2,058.62, right up against resistance.
These technical features are occurring along with the highly televised shift in the Fed's position on interest rates not too far off. Many believe that the Fed will increase rates in June. Some believe it will be pushed out until September, although the argument for starting in June seems more compelling. (See for example, The Real Reason the Fed Has To Raise Rates in June.)
It would not be surprising to see weakness in the stock market in anticipation of the Fed raising rates, we are already seeing the currency markets react by bidding up the US Dollar. What is priced into stocks is harder to predict.
Chris's charts below show bullish set ups: 1) growth stocks are outpacing value stocks, 2) discretionary stocks are beating staples, and 3) the Russell to SPY ratio is moving higher. These patterns are constructive for the stock market. On the whole, if the S&P 500 can take out 2061, and hold it, the market is well-positioned for further rallying.
Actions: The first chart suggests some caution while the S&P 500 deals with a strong resistance level and monetary conditions are somewhat uncertain. (The Fed, or expectations for the Fed's next move, are historically strong influences on the stock market). However, our "slow money" (long-term equity exposure) is still long this market, as it has been for several years. Chris previously suggested taking some money off the table here and seeing if the S&P 500 breaks out, in which case he would add to his long positions.
For free alerts from Chris on other interesting chart patterns, visit his website and sign up at the top right.
