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Pushing toward new highs is typically a back-and-forth struggle, and this time is no different. As the S&P 500 meanders toward the 2120 area, a few technical signals suggest that some form of capital preservation (or avoiding new longs) is in order. Most particularly, as can be seen at the bottom of the chart below, VIX has found a footing near a recent low versus its 50-day moving average which, in the past, has preceded market setbacks.
Stochastics are also correcting from an overbought basis, and KST, although strong and positive, highlights the waining momentum. In the chart below, note the extreme hights of both the NYSE Advance-Decline ratio and the Summation Index. It is market conditions like this that convince us to take a "reality check" and hedge long portfolios. One such option is to short S&P 500 e-Mini futures to try at least to maintain stability in our portfolios. Any blast of negative market news can lead to an unraveling of this push upward.
One of the positive indicators supporting the uptrend has been our "bond risk premium" indicator (a component of the Trendflex Score). this flashed a long signal for equities on March 1st. Small caps and discretionary stocks also show strength, helping to support the "risk-on" trade.
In summary, it appears to be "make or break" time for equities. Recent pullbacks early in the day have mustered strength to recover by day's end. Earnings jitters as well as today's Fed announcement have added an aire of caution. We'll see if the waning momentum shifts to a new downtrend or simply continues to consolidate in a trading-range pattern. A convincing gain in the S&P 500 to the 2130-2140 area would be key to shift the consensus back to a firm uptrend.
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