A Bullish Market That Is Getting Stretched

New York Stock Exchange (NYSE) on April 12, 2019 (Photo credit should read JOHANNES EISELE/AFP/Getty Images)

New York Stock Exchange (NYSE) on April 12, 2019 (Photo credit should read JOHANNES EISELE/AFP/Getty Images)GETTY

The stock market continued to chug higher last week, powered by good earnings from a number of big banks on Friday and the release of March's FOMC minutes, which were uncontroversial. There might be disappointing earnings that will cause the market to pause in the next few weeks, but overall, I think the earnings season will be better than most expect.



The market is starting to get overextended, which is not surprising, as there has been very little correction since the start of the year. The Spyder Trust (SPY) had a high on Friday of $290.48, which was just above the September 21 high of $290.24.

Many of the market-tracking ETFs in the table above are getting closer to their weekly starc bands. The starc bands are a tool developed by the late Manning Stoller that were designed to identify price extremes. When prices are at or above the starc+ band (upper band) they are in a high-risk buy area, and considered overbought. If, on the other hand, prices are at or below the starc- band (lower band), they are in a high-risk sell zone and oversold.



On the chart, I have highlighted in yellow (area a) when the SPY traded above its weekly starc+ band for four consecutive weeks in January 2018. This was followed by a very sharp market decline. There have been only ten weeks since 2016 when the price of SPY exceeded its weekly starc+ band.

As noted on the initial table, SPY closed just 2.0% below its weekly starc+ band, so a rally this week could take it above its starc+ band. The Invesco QQQ Trust (QQQ) and NYSE Composite are just 2.3% and 2.4% below their weekly starc+ bands. All of this shows that the market is not yet overextended, but could become so in the next several weeks.

Right now, the weekly technical studies are still clearly positive. The S&P 500 advance/decline line moved above the September 2018 high (line b) on February 1. Having followed and taught about the advance/decline for over 30 years, this was a signal that the S&P 500 would also eventually make a new high. The S&P 500 closed Friday just 0.8% below its all-time high.

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In my Viper ETF Report and the Viper ...

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