Instead of taking readers down a vast black hole of metaphorical market misery, taking into account vast sets of data that arrive at a semi-cogent conclusion, I have decided to present one chart to aide in gauging the market for the rest of the week.
The market of 2014 has been a devilish brand of mischievous behavior that has led to some extremely narrow results. By narrow I mean that new highs are being accompanied by fewer eager participants, in the form of common stock, who are ready to embrace the highs as would be widely expected. Instead of traditional market leaders such as the SOX or the Russell, the markets have fallen in lust with large cap technology that has enabled the NDX to become a hero of sorts to those pursuing the bullish thesis.
While the NDX is a perfectly acceptable market leader, there is something to be said about order in the markets. When the order of leadership changes, typically market participants are either being A) completely and totally hoodwinked into accepting a rally that is fraudulent in nature OR B) the market is shifting into a different phase that participants are rarely prepared for, with shifting leadership and expanded ranges for indicators that do not like to remain predictable for too long a time.
Often times what can clue us into whether we are being A) hoodwinked or B) asked to change our expectations for what is normal leadership and ranges is to follow the simplest path by looking at the most obvious thing. In the current case the most obvious average that can provide with the greatest clues is not the SOX, Russell, Nasdaq or Transports, it is arguably the most widely followed popular average of all: S&P 500.
Following today's bullish symphony of price appreciation the S&P is sitting right on the key trajectory that it plunged through on July 31st. This is the same trajectory was born at the 2009 lows. Needless to say, it matters...a lot. How we close this week in relation to this trajectory tells us everything about what to expect going forward for the markets. Additionally, while tech is at a new high with the Nasdaq, I would be hesitant to have a seat at the bull table until the S&P 500 confirms. This becomes especially true as the SOX and Russell 2000 are lagging substantially.
Without further ado, I present the S&P 500 with notes:
click chart to enlarge
S&P 500
