Stocks, commodities, high yield bonds, and precious metals have shown the propensity to drift higher behind the fuel of liquidity injections from the Federal Reserve. So despite a global economy that has remained sluggish, stocks can rise nevertheless. That is exactly what we have been experiencing here and abroad. Below are a few charts that have given some shorter term sell signals.
Notice the breadth indicator, known as the Summation Index above, is at the point of crossing below the moving average. Typically this will signal a weaker stock market in the future.
The chart above has the record high index in the upper pane and the S&P 500 in the lower pane. The record high index has equaled the two year high and is trending sideways signalling exhaustion.
Finally the VIX Index which has been referred to the fear gauge is at complacent multi-year lows and trending lower. There is not a lot of fear in this market at the present time.
Bottom Line: Markets continue to make new highs despite the above charts signalling either complacency, or overbought readings. I expect market highs to continue, as we are experiencing a new paradox in capital markets where induced liquidity, and currency depreciation are a top priority among central banks worldwide. The liquidity injections and weaker US Dollar have aided the S&P 500 in moving higher. Thank you for reading.
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