The stock market technical indicators delivered another improvement yesterday. Relative strength indicators (RSI) for US markets have moved into positive territory above 50%, now joined by the EuroStoxx 600 Index this week. MACD momentum readings are still negative for all markets. The S&P 100 and 500 have edged above their long-term MA’s (50WMA) for the first time in months. The tech sector, S&P 500 and 100 indices in the US are now showing readings with the majority of stocks trading above their 200DMA. Meanwhile, the NYSE A/D Line is approaching the highs set in December while the TTI has broken out to new all-time highs.
The technicals are starting to confirm the bullish readings of the TTI. There are a few more pieces of the jigsaw that need to fall into place before I can turn bullish. The recent ramp higher in stocks has led to the market becoming sharply overbought in the near-term. 86% of stocks in the S&P 500 are now trading above their 50DMA, which is an extreme. As the S&P completes its first daily cycle (DC1) of this new medium-term investor cycle (IC), we should see a decline in the stock market in the weeks ahead. If the TTI and technical readings hold up while the market works off the excessive bullish readings, I will increase the equity allocation in my active asset allocation strategy.
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