In the May 11th edition of "Current State," the conclusion after various points of analysis was that the markets were poised to break higher after digesting the breakdown in key growth names in a graceful and elegant manner. With last week's close at record highs for the S&P 500, the market is slowly revealing its hand to a mostly unconvinced constituency that is more concerned with harboring psychological scars of the past than profiting aptly from the present embodiment of a bull market.
This fact is revealed in both the volume and tedious nature of the price action. There is by no means a rush for entry back into the markets by those who feel that equities contain a disproportionate degree of reward from this point forward. In fact, it has been a hallmark of the current bull market to tiptoe to the upside in a manner that has caused concern since the very beginnings of this bull market in 2009.
The tiptoeing nature of this bull market continues to cause confusion for investors who have been brought up in the school of violent moves to the upside coming about on above average volume. A trait of the markets that was left behind in the 90s alongside Pets.com, CMGI and Iomega. The modern day secular bull market is built on such a wide array of available options for equity exposure that it would be foolish to think that volume would be able to be interpreted as it was in the past. Additionally, there is a chronic absence of conviction among market participants that shows up in both volume and price action.
Let's start by looking at a weekly chart of the Dow, which is setting up as powerful a pattern below a critical area of resistance as can be found:
Dow
What is important to note about the weekly Dow chart above are two things in particular:
1. The extremely tight nature of the consolidation above the previous short-term highs from the middle of last year.
2. The extremely tight nature of the consolidation below the extremely important generational trajectory that has its origins at the 99-00 bull market high.
The fact that the Dow has chosen to put together one of its tightest shows of consolidation in recent memory below a generational trajectory is extremely bullish. It tells of a market that may actually run from here further than any of us expect.
Moving onto technology next. According to the Nasdaq Composite, the downtrend that has plagued the market since March is now officially over.
Nasdaq Composite
The obvious target for the Nasdaq is the old highs right around 4370.
The S&P 500 has put in a new high on anything but obvious amicable terms, instead choosing to take the inconspicuous and incongruous path to value creation through the act of playing dead throughout its levitation. A low volume, low volatility affair that leaves little in the way of excitement for all the trained eyes who choose to carefully study its seductive dance.
S&P 500
What is perhaps most important to note about the S&P chart above is the respectful manner in which it has dealt with its trajectory points. Choosing the path of obedience, rather than defiance in using them as support for this recent move up.
Speaking of respect, the Russell 2000 has shown the appropriate amount of respect for its trajectory, as well.
Russell 2000
A move above 1137 cements the reversal here. Notice how the current test of the trajectory looks oddly similar to the test that took place in August-September of last year.
The degree of confluence taking place among important averages relative to their trajectory points is an important underlying indication of strength in the markets that is not being talked about...at all.
Here is another important average that showing respect for an extremely important trajectory: XLF.
XLF
Lastly, let's take a look at one of my favorite technology names FB. I always feel it to be important that I contextualize my bullishness in FB by providing reference to articles from 2012-2013 when FB was at 20 and the butt of jokes among Wall Street participants. I believed it would appreciate substantially then just as I do now.
The consolidation taking place in FB is among the strongest of the beaten down momentum names. A testament to the leadership quality this name has taken in the social media space and technology as a whole.
FB
Contrary to the wretched popular opinion that would have you believing in shadow people and furry tailed orcs lurched over the accounts of investors, there is a much more pleasant story being told by the markets. It is a story that needs a little bit of digging to reveal. The beauty of it all will nonetheless be a source of enrichment for those who grasp its message. And that message is one of an underlying harmonious movement to the upside that only demands investors mute the noise and see it for exactly what it will be.
