While the bulls flex their muscles day after day, it is daunting for those who believe that the economy is not on sound footing and that the latest earning season is not about to suddenly provide a cornucopia of better than expected earnings - especially since expectations have been ratcheting up so much recently.
More and more, this is a technically driven market, decoupled from such mundane things as P/E or the economy or any type of anchor we may think is rational to attach to it. We just ricocheted off the S&P 500 index’s 50 day moving average. If you recall back in June and July it was the 200 day moving average which buttressed the index before turning up itself.
But arguing with the market is about as useful as standing in front of a runaway train and doing a PowerPoint on why it should stop in its tracks. Remember that bears have always had the most lucid and convincing arguments.
I’ve been guilty of comparing this spring rally to the 2003 cyclical bull market. If you’ll indulge me once more, here is yet another point of similarity.
The percentage of S&P 500 components which trade above their 50 day moving average fell through the floor to hit the basement in the summer of 2002. Those were dark days indeed. Then even as the S&P 500 index went lower, this metric did not - suggesting that less and less individual stocks were participating in the continuing bear market:
The first sign that things had changed was the almost unanimous involvement of the components in the ensuing rally. In June 2003, out of the 500 stocks in the index, 471 of them closed higher than their intermediate moving average. Then it started to show a remarkable resilience as each subsequent low in this metric was higher than the previous one.
Here is the recent chart of the percentage of stocks above their 50 day moving average, showing a remarkably similar script:
A caveat is that we are starting to see some speculative fever getting stoked in the options pit. But even this is not extreme enough (yet). The market resilience continues with few signs of abating.
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