Continuing the rally that began the year, stock markets in the US and abroad have continued to extend their winning streaks. The Core Indicators remain positive. We are beginning to push the limits of what has been historically observed in terms of market performance. Should the S&P 500 have another week of gains, it would be the longest period in its recorded history that there has not been even a 5% pullback in the index throughout a Bull cycle. These moves are atypical. Historically, low volatility years with limited pullbacks (such as 2017) tend to see more volatility and a greater probability for a larger pullback in the following year. The heavier risk for limited reward does not appear favorable, especially given the short-term picture.
The Tactical Indicators have both moved to their red zones. The 10-week has reached the 76% level, crossing into the High Risk zone. These are points in which it is riskier to commit capital. Moves above these levels do not generally last long, and reversals can occur swiftly. Given the strong push this week, the MSCI All Country World Index has again made new highs, crossing the 532 mark, which may bring us to the Highly Overbought level, which has not happened in nearly 7 years. At the end of the Friday’s trading, we could see the indicator move through the channel completely. Pullbacks that tend to develop early in the year are limited, but they could lead to larger corrections later in the year. Many of the gains can be wiped out quickly, if history is our guide. The seasonality effect is the last piece of the puzzle.
This week, we discuss the historical context of market action when the Tactical Indicators are simultaneously in their red zones to give perspective. We also review Gold price movements. For position and performance data, please view the Weekly Update video. If you are not yet signed up to receive the Weekly Update video and would like to receive it for a limited time, then please click on the following link and let us know that you found us through our Blog: Request Weekly Update.