Article by ForexTime
There are pockets of weakness in the U.S. stock market, but the broader market is showing enough strength to keep the bull trend going and there were some notable new highs this week. On Friday, the Commerce Department reported a better-than-expected gain in October retail sales and University of Michigan sentiment hit a seven year high. This bodes well for retail as we head into the holiday season.
The Technology SPDR is currently one of the market leaders, but new highs were also made in the Finance SPDR, the Industrials SPDR, and the Consumer Discretionary ETF along with Transport iShares, which have been gaining significant traction as oil prices decline. Throw in the S&P 500, Dow Industrials and Nasdaq 100 for good measure, and we have a pretty good group of new highs.
Investors are bidding up large-caps because the S&P 500 hit a new high. The S&P MidCap 400 and Russel 2K remain short of new highs, but both are less than 3% from 52-week highs. The S&P 500 with a failed support break in mid-October and a huge surge the last four weeks. After a 12+ percent surge from low to high, the index is close to overbought territory, according to the RSI, and ripe for a consolidation or perhaps a pullback.
The high low percent hit a milestone this week. Two key breadth indicators confirm underlying strength and suggest that a top is not imminent. A bearish divergence forms when the index moves to a new high and the indicator does not confirm. Such a divergence warns of underlying weakness and we are not seeing that currently. Small-caps and mid-caps may be under performing large-caps, but the next two breadth indicators suggest that, in aggregate, there is more strength than weakness. The absence of a bearish divergence reduces the chances of a significant top in the stock market.
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