Thursday had the S&P500 and SPY within reach of 52-week highs, while the AAII ratio between bulls and bears changed suddenly on the monthly time frame. Over the weekend, we discussed the state of AAII bulls vs. bears ratio as it approached the 2009 lows. This is significant for the current rally despite trading at ATH.
Here is the monthly chart with SPX in the upper panel, AAII ratio middle, and price momentum oscillator (PMO) in the lower panel. PMO is more accurate in longer time frames compared to MACD.
As the ratio changes direction, bears are relinquishing control to the bulls despite SPY at 52-week highs. In addition, we can see that the number of stocks at 20-day highs is at 50%. Breadth is improving as NYMO starts a bullish cycle two weeks ago. Chart courtesy Bloomberg Finance.
Equity flows, as measured weekly, have been negative. Approximately $50 billion has left the markets 10 weeks, with this week showing approximately $6 billion of inflows. Since the March 23rd lows, only six weeks of inflows, 16 weeks of outflows.
While these are no reasons to throw caution to the wind, we do need to monitor the markets closely for confirmation. Last weekend we published the weekend video where we highlighted the indicators were (13) bullish, (6) neutral, and only (1) bearish to start the week. We also mentioned August is seasonally one of the weakest months of the year.
With SPY, QQQ at highs, and IWM strengthening, we will continue to analyze our prospects for an end of year rally into the election.
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