Wednesday, August 27, 2014
Last week I pointed out that my three favorite US stock market trend indicators were all bullish as they were trading above their 50 day moving averages (green lines in top three charts). But I did express concern that European stock market was flirting with a potential bear market and that this was dangerous for US stocks if it materialized.
The second chart from the bottom shows the European Stoxx Index. You cans see that during the past week it has recovered smartly and is now trading above its own 50 day moving average. I think this means that the danger of a bear market in Europe has passed for the moment and this supports my current bullish prognosis for the US stock market. I thin the S&P 500 is headed for 2080 over the next few weeks.
Of course unexpected economic or political news can change this bullish picture quickly. But absent that I think the technical condition of the US stock market is strong enough to continue pushing prices higher. One manifestation of this strong technical condition is the continued skepticism of short term traders. The bottom chart shows the 5 day moving average of the CBOE equity put-call ratio. At the August 8 low this indicator was higher (thus showing more bearish sentiment) than it had been in nearly a year. It has come down since then but until it gets close to or breaks below its June low I think there will be enough bearish sentiment around to support an upward trend.