Stock markets continue to chug higher, with the major US indices all ~2% or less from their all-time highs. Three weeks ago, we noted that - despite our scepticism - we seemed to be looking at markets that “want to push higher across the board… despite the overhang of earnings, macro economy news, North Korea, and ongoing China trade talks… [this looks] increasingly like an environment where the only rational positions to take are either to be flat or long.”
This view has continued to play out – analysts widely expect this to be the worst earnings season in three years, but markets seem fixed on shrugging off declining profits and continue to rally towards their all-time highs. It seems as if the only criteria for continued strength is that trade talks continue to ‘progress’.
Technically, golden crosses have set in across major US indices, the majority of their component sectors (~60% of S&P industries), and global markets (~65% of countries). A golden cross is a technical signal where the 50-day moving average crosses above the slower 200-day MA – the opposite of a death cross, where the reverse happens. Ceteris paribus, this signal is viewed variously as a confirmation of an ongoing upward trend, and also a forward-looking signal for a long-term bull market.
Worth noting also is that the rally of this last trading week leaves most markets technically overbought. With the S&P up more than 15% for the year, any less than sanguine news events could provide an excuse for profit-taking in the short-term.
Chart from Sigma by Hydra X
The S&P 500 rose for a seventh consecutive day, its longest rally since 2017. It was up 2% for the week, closing at 2,892, six month highs, and 1.6% from its all-time high of 2,940. NFPs increased by 196,000 in March (vs 177,000 median estimates), and unemployment came in at 3.8%, near a 49-year low. Analysts interpret these numbers as showing the real economy and labour market are strong, and the risk of a recession is unlikely.
Technically, the index has continued its uptrend, holding resistance-turned-support, breaking out of the bull flag identified last week, and rallying towards its all-time highs. We see a golden cross formed by the 50-day SMA (red) crossing above the slower 200-day SMA (blue).