Tech TalkIn the chart of the S&P 500 below, we can see how the stock market index is near overbought conditions with RSI at 66.79 and momentum is declining as MACD turns south. This sets up a divergence between momentum and the recent rally back to significant resistance levels and typically these divergences are resolved in one direction or other.
With major resistance at the 1600 level, just above current price, the most likely resolution is down as the S&P makes another stab at its all time high of 1593 set on April 11. Should that directional correction unfold, Fibonacci retracement levels find support between 1530 and 1550 so the likely parameters for an initial correction fall between 5% -12%.
The Big Gorillas in the Room: Oil and Energy RallyOil and energy ETFs, Energy Select SPDR ( XLE) rose significantly last week, likely in response to fewer unemployment claims and renewed hope for global economic growth. Oil was up more than 5% as West Texas Intermediate Crude closed at $92.90 per barrel.
VIX Croaks AgainThe VIX Index, the CBOE S&P 500 Volatility Index, also known as the "fear index," declined sharply last week in response to higher equity prices and fewer unemployment claims. The VIX Index lost 9.08% for the week to close at 13.61,while the iPath S&P 500 VIX Short Term Futures ETN ( VXX) lost 5.87% and the VelocityShares Inverse VIX ETN ( XIV) added 5.92%. Markets remain decidedly complacent and fearless in the face of a global macro economic slowdown and weakening technical factors.
Bonds Flash a Warning; Stocks Say 'Take a Hike'As everyone knows, the bond market and the stock market tend to move inversely to each other. As stocks rise, bond prices fall and bond yields rise.
As stock market prices fall, bond market prices rise and bond market yields falls. This is simply a reflection of the flow of capital between "risk on" and "risk off" assets and tends to be reliable over long time frames. However, in today's central bank influenced, Wizard of Oz economy, interesting divergences are now taking place between the bond market and the stock market.