It has been evident since late Mar. that the rally in place since mid - Feb. had become overbought.
The setback this week suggests that a corrective move may be underway, but it is too early to tell
whether or not it will be a significant move or not. Price momentum began to fade late last month,
and the break in the clear, sharp shorter term uptrend came early this week. SPX Daily
For possible hints on short run direction, you may want to focus on the RSI indicator in the top
panel of the chart to see how the market behaves if and when this indicator drops down to the
50 level (neutral). The bottom panel of the chart features the daily oil price. The stock market
has been tracking the oil price closely this year as a higher oil price signals better earnings
performance for both the oil sector and the SPX. Both oil and the SPX were so deeply oversold
this year, that one perhaps should give not up on either too quickly. As well, shorter term leading
economic indicators are on the rise for the US, so the desultory earnings expected for the first
quarter may not be indicative of results for the year for both the SPX and oil.
The current fair value bands for the SPX are featured on the chart as well (1870 - 1990). Plainly,
investors have been looking for a positive turn in earnings as the year progresses.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!