The realm of stock market is constantly thriving under the process of modifications and alterations. I only became a flea market vendor in the past two years and find that many individuals in my area want quality products on a sales level. Remember too that what is a popular merchandise at one flea market won’t necessarily be popular at another flea market venue. Furthermore, the optimists seem to be forgetting that the US shale industry is in serious trouble; thus America’s junk bond market may pose problems in the future. Instead, the stock market appears to be putting in a major top which will soon be followed by the next down leg in the bear market.
Turning to the stock market, there can be no doubt that last month’s rally on Wall Street was impressive but so far, the S&P500 Index has failed to surpass its all-time high. On the bullish side of the ledger, the S&P500 Index has managed to reclaim the 200-day moving average but with the market now severely overbought, at least a near-term pullback is on the cards. Furthermore, the NYSE Operating Companies Only Advance/Decline Line is also lagging, which indicates weak market breadth. This time may be different but decades of history shows that such price action is typical of a major stock market top.
In our view, this price chart reveals the true weakness in the stock market and it demonstrates that on average, the largest 500 companies in the US topped out earlier this year. In addition to the S&P500 Equal Weighted Index, the Russell 2000 Small-Cap Index, the Russell 2000 Growth Index and the Dow Jones Transportation Average are also showing weakness, which is not consistent with the start of a new up leg in a bull market. Over in the credit market, junk bonds have not participated in the recent festivities either and this lackluster performance is another red flag for the broad stock market.
Given the above data points, we are of the view that the stock market is in the process of completing a major top and investors should use rallies to get defensive. If our assessment is correct, the stock market rally will fade around these levels and under the most optimistic scenario; we may get marginal new highs in the major indices which will ultimately give way to the bear market. At this stage, we do not know what may cause the stock market’s breadth to improve, but if there is additional central bank intervention, the ongoing rally may get extended.
If this is a healthy bull market, then the S&P500 Index will need to break out to new highs on improving market breadth. At this stage of the game, either scenario can play out but given the poor breadth outlined above, the odds favour the continuation of the bear market. Fotolia keep a good stock of photos and ensure their name for photos, I have found that by looking at other peoples files and searching key words helps me to work out what may be accepted, or that you may find a niche market for your unique images.