The S&P 500 made a new high yesterday, but I don’t think it’s the top. I did a post on Monday about what I believe would be a warning sign to look out for that tell us that the type of exhaustion top that leads to a real correction is being put in place. I want to step back and make one other comment about the stock market. Take a look at the 90-day day Rate of Change indicator on the bottom this chart and what it did last year.
The ROC indicator simply measures how much price has moved over 90 days. That plunge in this indicator last April to -20 and then surge to over 40 was the biggest swing it has ever made in its entire history. That means there was massive price volatility in the markets. Now that indicator is settling down, trading right below 10, where it is likely to stay for awhile. Overall stock market volatility is shrinking, but if there is a fast volatile push to the upside it would trigger overbought conditions in the key RSI indicator.
So, for now, you can say the S&P 500 and US stock market is now floating up on a see of liquidity. The individual trader is not dead. He took a hit in March, but has been back to chasing fad plays such as AMC on Robinhood over the past few weeks. One fad play that has been on the Robinhood top 100 list since its debut is COIN. It finally had a decent up rally day yesterday.
Also, yesterday, many solar stocks had a pop, led by Canadian Solar. The is a heat wave in the northwest. Maybe that is causing some people to stay inside and think about buying solar stocks.
Now if we step back and look at soft commodities they pulled back a little over the past few weeks, but firmed up yesterday. However, when you look at a long-term chart it looks like many individual commodities, such as corn, to use one example, are likely to chop sideways for awhile.
This corn ETF is likely to trade between $19 and $21 now for months. It simply had a massive run after bottoming last year and when something, whether it is an individual stock or an entire market average, moves like that it tends to spend a period of time then going sidways.
Gold and silver really have been in an overall sideways trend now for a year.
The moves up and down over the past two months are moves within an overall sideways pattern for gold. Now the ROC indicator for gold got over 30 and the RSI up to just below 90 last year when it made its peak for 2020. That is the type of technical overbought condition that if it were to happen to the US stock market later this year we would have to take as a serious warning. I am still watching the GDX/GLD ratio on the hourly chart for a buy signal. It hasn’t given one yet.
-Mike
