This is an interesting post from Jim Riggio in our forums where Jim discusses his charts and why he thinks the S&P 500 up move is getting strong…
My “Momentum” charts are showing that the S&P's persistant move higher is strengthening.
… and my “Oscillator” charts, while high have not yet started to weaken.
As you have heard me say in the past… the Oscillators can live up here on the “ceiling” for longer then seems reasonable. This is the type of market (or stock prices) that Peter Lynch was referring to in his classic “One Up on Wall Street” when defining the most common mistakes that investors make… “The price has gone up this high. It can't go any higher.” Oh yes it can.
As traders, we all learn from our losses. Personally, I did a lot of “learning” from the Dot Com bubble bursting. Expensive learning! One of the lessons was to watch which sector/group/class of securities was “leading” the market. For the last several years, the Small Cap, represented by the Russell 2000 (RUT) have clearly led the Large Cap, represented by the S&P 500 (SPX) in this bull market. The attached chart below, shows the RUT's leadership from 4Q 2011 through 1Q 2014.
However, since the end of 1Q 2014, the RUT previous leadership has turned into severe “laggardship.” (OK so I made up that word… but the RUT has been getting it's butt kicked by the SPX). The SPX has outperformed the RUT by nearly 7% since mid-March 2014, as the chart below shows.
If (and that is a mighty big “if”) the markets do correct over the summer, some people will look back and say “See! Wasn't it obvious?” I don't have a crystal ball. I believe that those people who live by the crystal ball, are destined to eat glass. I am not suggesting that markets will pull back any time soon. In fact, in the short run, the path of least resistance is higher. However, I think that smart money, while still in this market, has positioned themselves very near to an emergency exit.