In what would appear a looped message on repeat, stocks in the US and abroad have extended gains again this week. As such, we have seen limited price drops recently as a feeling of euphoria appears to be settling in temporarily. All Core Indicators remain positive, which shows us that the long-term Bull Cycle trend is still well intact after 22 months. The Cash Comparison charts have continued upward from their January 2017 breakouts of the previous high watermarks from April 2015. This month has provided several more advancements. The Universe Trend Indicators are also moving upward, but it has been a slow grind. Since many indices are based on market capitalization (i.e. the size of the companies that compose them), we have seen the larger companies dragging these indices higher without as much full-scale participation. More retail investors have decided since markets hit highs that now would be a good time to enter. We now have achieved the longest period for the S&P 500 in its recorded history that there has not been a 5% pullback. We would approach with caution.
The Tactical Indicators have pushed further into to their red zones. The 10-week has reached the 78% level, a point of High Risk and a double top pattern from the same time in January 2017. Oftentimes, short-term consolidation happens from these levels, as happened last year, but another push to 82% would achieve a triple top with the readings from March and April of 2016. To reverse the trend, we would need to fall to 72% or lower. From a narrow band in the spring of 2017, the MSCI All Country World Index has pushed aggressively higher, and it is fast approaching the 550 level, which is definitively into the Highly Overbought zone. The 550 mark could serve as psychological resistance, much as the 500 mark did in November and December of 2017. A 10% pullback would bring the chart back to the 500 level from where we are currently; that point would also be below the Bull Trend Average. We are not sounding the alarm just yet, but we think that much as a rubber band snaps back harder the more it is extended, so too could the markets in this context of events.
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