The last week saw the major averages push into the second cluster of resistance I have been eying since update number 14 in April. I do not expect a push much higher prior to a significant pullback. However, sentiment indicators (like the AAII survey) are not yet at extreme enough levels for an "ideal" topping process to be counted. Both Elliott Wave and DeMark patterns are suggestive of a push higher following a short pause as well.
I have had my eye on negative divergences in the currency, commodity and bond markets for signs of an impending change in direction.
The chart below shows the month's gain as the fifth consecutive for the S&P 500. It also helps to provide context to the size of this rally.
The 50 day moving average of the advance/decline line is again pushing its upper boundary.
The Chinese stock market saw some volatility last week with a 5% selloff. It was met with a rebound in the final two days of trading. As one can see from the previous bull market, betting on an end to parabolic moves in this particular market could prove costly.
Commodities put in a massive reversal mid-week, but still remain below their June highs.
I outlined a possible non-confirmation between the US Dollar and the Euro last weekend. The Dollar index has indeed pushed below its previous low, while the Euro has failed to confirm the move. This kind of a divergence has typically preceded major moves. Early in the overnight session, we can see the Euro trading higher, but still under its resistance level. Regardless, I see limited downside for the greenback with only 9% bulls (trade-futures.com). It has almost become "common knowledge" that the US Dollar is soon to become worthless - which is precisely why it won't happen.
Have a great week!
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