Summary: SPX has now gained 16% since Christmas Eve, while the Nasdaq is up 19%. NDX, RUT and DJIA have all risen 7 weeks in a row. Large, uncorrected gains like these are typically near the outer limit before a period of consolidation/retracement. That period may have started this week.
The persistence of trend like this is typically followed by higher highs ahead. Breadth reached another milestone this week, a condition which in the past 20 years has not occurred during a bear market and has not occurred until after the correction low was already in. This adds further evidence that Christmas probably marked the low for the recent swoon.
The pullback this week started from a backtest of the 200-day MA, the 4th attempt to regain the 200-d since early October. Importantly, the slope of the 200-d is flat, a condition which is unlike those during bear markets; this is typically when SPX is best able to break higher.
From Christmas Eve to its high this week, SPX gained more than 16% while NDX is up 19%. They have since given back about 2%. NDX, RUT and DJIA have each risen the past 7 weeks in a row. Enlarge any chart by clicking on it.
That the indices started giving back some of these gains is normal. An uncorrected 16% gain over 7 weeks has been at or close to the outer bounds over the past 10 years. In each case, a period of consolidation and retracement has followed.




This suggests that SPX, after the current retracement, will move higher in the coming weeks. It also adds more evidence that Christmas probably marked the sell off low.
Further evidence of that being the low comes from breadth momentum, a topic discussed in recent posts (here and here). This week, the Summation index rose to +899 (NYSI, lower panel) . This did not occur during either the 2000-02 or 2007-09 bear markets; the markets had rolled over before then, lacking sufficient breadth. Moreover, when SPX has dropped more than 10% and NYSI subsequently reached +900, the low was, in all cases, already in (circles).

Again, this does not preclude an interim pullback. NYSI reaching +900 has sometimes marked a period when SPX was 'overbought' and pulled back 4% or more (arrows in the chart above). But the low should hold and higher highs should be ahead. The gains over the next several months have historically been outstanding (table from @twillo1).

The stall in SPX this week started from the backtest of the 200-day MA (red line). This was the 4th time SPX has tried to regain the 200-d since early October (arrows). Importantly, the slope of the 200-d is flat, a condition which is unlike those during bear markets. This is typically when SPX is best able to break higher.

Stalling at the 200-d is common behavior for SPX. Many eyes are on the 200-d and so the area around that moving average has become a self-fulfilling line of support and resistance.
The threat of trade war hit emerging markets hardest; they peaked in January 2018, well before the US. It is therefore encouraging to see these markets rebound. EEM this week traded to a 5 month high; the down trend from January has been broken (top dashed line) and the region appears to have exited a 4 month base (yellow shading). Of note, the region also completed a low retest between October and December (bottom dashed line).
Likewise, South Korea is often considered a good proxy for global trade. The Kospi index ended the week above its 4 month range (yellow shading) and has also put in a double bottom (arrows).
The 'breakouts' for both EEM and Kospi will look doubtful if they trade back within their prior range for more than a day or two.
On the calendar this week: retail sales on Thursday and Friday; also industrial production and OpX on Friday. Due to the government shutdown, delayed data will be released over the coming weeks (from IBD Investors; for a trial subscription, please use this link).

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