SPX New Highs With Negative Divergence
The SPX made a new bull cycle high
close last week at 1227.92, +1.1% on the week and +0.1% on Friday.
The weekly high was 1233.16 vs. the 03/07 1229.11 high. The IWM and MDY have
previously made new cycle highs. The QQQQ closed Friday at 38.89, +0.3%, and
+3.0% from last week’s 37.77 close. The Dow was +0.1% on Friday and +1.8%
on the week.Â
NYSE volume was relatively light on a quiet expiration Friday
at 1.32 billion shares with the volume ratio 47 and breadth -18. There has been
a negative divergence for both the volume ratio and breadth for the past three
days in spite of the rising price new highs for the SPX. Breadth was -353, -225
and -18 as the SPX advanced from Wednesday’s 1219.64Â low to Friday’s high
close at 1227.92. The volume ratio was 51, 54 and 47, so market action was
weak relative to price, which highlights the narrowing participation of SPX
stocks pushing the index higher. The $TRAN, XLB and XLI remain below their bull
cycle highs in spite of rallies last week. The DIA went out at 106.29 vs. its
bull cycle high of 109.83.
The other significant part of last week’s market action is
that the SPX, QQQQ and Nasdaq are now at extended +2.0 six-month standard
deviation levels as are the BKX, XBD, RTH, XLK and XLY. This is always a red
alert, especially when there is also a divergence in the volume ratio and
breadth, as there was last week. Should the market go weak on Monday, the
initial SPY focus levels that will attract sellers will be Thursday’s 122.49 low
and Friday’s 122.36 intraday low. If the SPX is to extend Wave 5 of this bull
cycle a short term retracement is definitely needed and the internals must get
back in gear. If it doesn’t retrace, there will probably be some kind of
sideways action. Any further SPX advance will meet significant resistance
hitting the 1254 .618 retracement zone to 1553 from the 769 10/02 low. Any
longer-term index proxy positions should be avoided based on the SPX going to
new highs last week. This corner will enter the put side of the market on any
rally into that 1254 zone. Monday is the 233rd day from the 08/13/04 SPY Wave 4
low of 106.59. Last week was also the 144th week off the 10/02 lows.
This is being done Sunday for Monday.
Have a good trading day.
Kevin Haggerty
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