I don’t Choose the Bottom, but Can Sense a Top

One of the simplest ways to measure market strength is to see how stocks and indices are trading against their short, mid, and long-term moving averages.  The S&P 500 ($SPY) is above its 20, 50, and 200-day simple moving averages. So price action is to the upside.

What we have noticed over the last few weeks is that the momentum of individual stocks that make up these indices and ETFs are not making new highs, i.e. not all boats are rising at the same pace or if at all. This is a flag that a pullback is potentially in the works.

The last time we saw new market highs, but waning participation, was in 2000. The point is not that a 2000 extreme is in the works, but the market is clearly overbought and buyers are on the sidelines. Chasing new long positions is not ideal at these prices.

Keep the powder dry and build your long prospect list using the Tradespoon Scoop Bullish Stocks Tool.

Have a great trading day!