As of this morning, all three major indexes are trading at new all-time highs. The S&P and Nasdaq Composite are joined by the Dow, which finally made its “new high” push in today’s A.M. trading hours.
Corporate earnings continue to impress alongside another good jobs report, indicating that the American consumer is arguably stronger than ever. Fed Chairman Jerome Powell cut rates last week and even went so far as to say that there are no scheduled rate hikes for the future.
How much better can it get for bulls?
Not much, to be quite honest.
And though the indexes are rolling right along, the market may also be showing signs of “overachievement.” Not because investors are getting too excited about earnings – something that might be happening – but because stocks are moving well outside of their normal range.
The S&P 500, for example, is on the edge of uncharted territory. After hitting a new high last week, it’s going even higher. Which, usually, would be a good thing.
However, in this case, it’s at risk of venturing past the upper Bollinger Band.
In the weekly candlestick chart above, you can see how the S&P 500 has almost surpassed the upper BB. The last time a weekly S&P candlestick closed above the upper BB was in early 2018 (several weeks in a row), right before the index dropped 8% over the next two weeks.
A close above the upper BB hasn’t happened since. Yes, there were weekly candlesticks that lingered temporarily above the upper BB, but they ended up closing slightly below it.
That’s why this week’s current price action should be a little troubling for bulls. If the S&P keeps rising, we could be in store for a bearish rebound – one that potentially dismantles the current rally.
Don’t forget that the S&P also just broke out past resistance at 3,028.00 last week when it set a new all-time high. That resistance now serves as a level of support, and if the S&P falls, we could have a downside breakout on our hands if 3,028.00 doesn’t hold.
Worst of all, the stochastics are sky-high, well into a level that suggests the index is overbought. The last time stochastics were this high; the S&P 500 fell almost 4% the following week.
So, though it might appear that we’re set for good times ahead, chances are that there will be another slight sell-off somewhat soon. But it all depends on whether the S&P keeps rising.
If stocks can manage a week off to allow the index some breathing room, we might see more growth. The current pace is simply unsustainable, and without a temporary “pause,” stocks appear ready to drop.
Provided, of course, that the S&P closes above the upper BB – an otherwise exciting indicator that could end up spelling disaster for November bulls.
