The S&P 500 is warning of an imminent increase in volatility. Volatility has tapered off recently, which typically leads to expanding Bollinger Bands and a significant move in prices. The direction the markets take in the short term is another matter, which we will analyze and discuss during our “LIVESTREAM” broadcast today.
Earnings for the first quarter increased at a rate not seen since 2011, so an investor has to wonder how much higher can the markets climb this “wall of worry” without a drawdown of at least 5%.
Volume is good, despite the lack of conviction by market participants. TICK cumulative is still rising, reflecting more buying on the uptick by institutions compared to selling on the downtick. RSI is above 50 and range bound since April.
The recent pullback to the 20sma held, so a continuation day is needed to push the markets higher. As we look for bullish catalysts, sector rotation must continue in the transports, real estate and industrials. Healthcare has assisted too, together with some potential strength in financials. If all of these groups continue to see buying, the markets may continue higher in the short term.
Technology is the key.
If Nasdaq Aroon continues to deteriorate, the weakness may come from technology first. We will discuss this as well today, so be sure to check in for the pre-market show at 9:00AM for a brief discussion. If you miss the “LIVE” pre-market discussion, the recordings are on the Livestream site.