June 24, 2024
Good morning,
Let’s diverge into the classroom a bit this morning. Last week, we talked about new highs on the major equity indices not being confirmed by new highs in secondary indicators (advances vs. declines known as breadth, volume indicators, highs vs. lows, rate of change or 2nd derivative of all these primary and secondary indicators also called momentum, and many others). These non-confirmations are called divergences. The major indices (S&P, NASDAQ, Russell 2000, to name a few) are price indicators, and in technical analysis, nothing trumps price. They are the primary indicators.
With that said, the current technical state of the market is one of divergence vs the new highs in the S&P 500 and NASDAQ Composite. Divergence is not a warning sign of a heart attack but is more like a patient’s deteriorating vital signs, indicating fitness is on the decline. The doctor would recommend more frequent checkups, improved diet, and exercise. Divergence with modestly overbought sentiment (investor psychology too enthusiastic) and the doctor would double down, wanting to observe the patient more often.
That was last week’s diagnosis. With the S&P 500 Index up +0.61% and the NASDAQ down -0.01% last week, nothing has changed for this week. A modest pullback is not unexpected.
There’s not a lot on the docket today other than a couple of Fed speakers. The Fed will release the minutes of its latest meeting on Wednesday, providing insights into its future policy stance amid ongoing inflation concerns. The highlight of the week is PCE (Personal Consumption Expenditures) inflation data looming on the last trading day of the week/month/quarter/half, and while forecasts are locked into a benign reading, perhaps there will be some features of interest from the spending or income figures.
Be well,
Mike
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