S&P 500 Rallies To New High Last Thu; Tech’s Participation Should Help Build On Momentum

The S&P 500 posted a new record last Thursday; otherwise a laggard this year and March in particular, the Nasdaq 100 (NDX) too reclaimed its 50-day. Continued strength in tech should reverberate through the rest of the market, particularly market cap-weighted indices such as the S&P 500 (SPX).

The S&P 500 broke out to a new high last Thursday.

Since late January, the 50-day moving average has been defended three times, the last of which occurred six sessions ago. From that low through last Thursday’s high, the large cap index (4019.87) quickly rallied 4.4 percent. Bulls now have new support at 3980s, or just below at 3950s.

Despite repeated tests, they have so far managed to save a rising trend line from the low of March last year. There was a genuine intraday break five weeks ago, but bids showed up at 3720s to close the week right on that support (Chart 1).

Volume has been a suspect all along, including last Thursday. Last week’s breakout also came in the midst of offensive sectors beginning to act defensive.

Chart 2 uses six SPDR sector ETFs to plot a ratio between offensives and defensives. XLK (technology), XLY (consumer discretionary) and XLB (materials) are used as offensive sectors and XLV (health care), XLP (consumer staples) and XLU (utilities) as defensive.

The ratio peaked on March 1 at 3.86, before getting caught in a pattern of lower highs and lower lows. Last Thursday, it closed at 3.60 – right at the upper bound of what looks like a bull flag. Bulls would love a breakout at this juncture. A similar setup resulted in a breakout mid-November last year.

Right around that time – mid-December, to be precise – US money market funds bottomed at $4.29 trillion. As of last Wednesday, these assets were sitting at $4.50 trillion. The so-called cash-on-the-sidelines kept accumulating even though the S&P 500 rallied strongly post November 3 presidential election and particularly after Pfizer (PFE) announced its positive vaccine news, followed by Moderna’s (MRNA) similar announcement one week after that (arrow in Chart 1).

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