Courtesy of Scott Martindale, Senior Managing Director
This market sees nothing but rainbows and butterflies ahead. No worries, no fears. Although backing and filling is a necessary aspect of a healthy bull market, history shows that it can go on for awhile without. Now that the Dow has touched 12,000 and the S&P 500 came within a whisker of 1300, perhaps the bulls will be ready for a much-needed respite. In this overzealous market, Sabrient’s SectorCast ETF model continues to favor Healthcare and Technology.
You can see in the 10-year chart of SPY that it can stay on a steady bullish trend for quite some time, while the bearish periods are shorter and more explosive. The triple bottom in early 2003 launched a steady 4-1/2-year run that petered out with a double-top and then a cataclysmic fall concurrent with the financial crisis and real estate meltdown. Likewise, the V-bottom in March 2009 has turned out to be the start to quite a strong rally that is approaching 2 years in duration.
Still, as you can see, the RSI and MACD tend to at least revisit the neutral line periodically, even during raging bull runs.
The SPY was able to remain between the upper Bollinger Band and the 20-day moving average for 2-1/2 months during the September-to-mid-November timeframe. As shown in the second chart, the uptrend line is virtually a least-squares fit to the 20DMA. Also, there have been at least five bullish rising wedges since September 1, with the first four each leading to yet another bullish breakout. We’ll soon see what becomes of the fifth.
MACD has been flatlined near overbought since mid-December. It did the same for a couple of months in the mid-September to mid-November timeframe, before threatening to breakdown completely.
A pullback here would be healthy for a continued bull market. But because everyone is thinking the same thing, it might be quick and shallow, like we saw in November…if it happens at all.
The market volatility index (VIX) closed today at a low 16.65, and the TED spread (i.e., indicator of credit risk measuring the difference between the 3-month T-bill and 3-month LIBOR interest rates) is at 15.22. Both indicators remain relatively low and still reflect complacency (and investor optimism). Also, the CBOE Put/Call Ratio closed yesterday at 0.65, which is up from the 0.37 reading it clocked in recently.
