The S&P 500 index has traded in a tight range over the past 17 trading days (since August 7th), staying between 1394 and 1427 for the entire period. That is the tightest trading range for a 17 trading day period since 2006, which is an important observation, mainly because it indicates that the previous rallies during the entire bull market since 2009 have not had a similar period of such long consolidation. This rally has stalled, whereas all of the previous multi-month rallies of this 3.5 year bull market have been able to sustain their upward momentum over the course of a 4 week period.
I have gotten many questions from fellow traders over the past couple weeks asking me whether I am still viewing the bearish case as more likely than the bullish case. Looking at the objective measures of market strength have served me well over my trading career. Those measures of strength are broadly weaker than at any local high in the past 2 years. I still view the likelihood that stocks move lower over the balance of the year as a significantly higher probability than stocks moving higher.
Overnight price action:
- Asia has been the more likely leader of red price action overnight (after Europe dominated overnight futures moves for most of the first half of 2012). Asia ended broadly in the red, and Europe and SPX futures are trading down around 0.5%
- Treasury bonds are higher, and the dollar is higher vs. most crosses except the Euro and the Yen. Emerging market currencies have continued the weakness from yesterday, all down across the board this morning
- Spanish 10 year yields have started to move higher again this week, back above 6.5% this morning.
- Commodities are mixed, with no big moves overnight
- Personal Income and Personal Spending data released at 8:30 am, along with the PCE Deflator and Initial Jobless Claims.