The current market condition has not changed since March 31. Three of the four US primary trading indices are either flat or down since then, with the NDX continuing to exhibit extraordinary strength. Trying to understand the wildly and increasingly disparate price activity and market structure among the indices is confusing, to say the least, so let’s step back and take a look at each index individually.
NDX
Everyone is aware of the NDX currently holding up the entire US stock market. Everyone is also aware this is because of the enthusiasm for AI and the handful of mega-cap stocks that appear to currently be the greatest beneficiaries of that. For now, let’s put aside the attributions for the price action and simply look through the lens of Auction Market concepts.
The current market phase of development is vertical up in all relevant degrees of time. Pick any timeframe and you will clearly see a series of higher highs and lows. It gapped up Thursday and Friday so it may be in at least a short-term blow-off phase.
The NDX traded Friday into an upper KRA that has been highlighted in these reports for weeks, so this area is a candidate for at least short-term Balance that would include some degree of retracement. The next level to the upside is 6%+ to the upside.
When a market is this vertical the retracement levels to watch are the previous 1-day and 2-day extremes against the current trend. In this instance we’re looking at the lows of last Thursday and Friday.
Upper KRAs: 14227-14323; 15115-15271
Lower KRA: 13520
SPX
The critical upper level in the SPX remains 4200. The SPX has been in a choppy, whippy two-sided trade since March 31. Friday’s marginal close above 4200 at 4204.84 is potentially very bullish, at least short term. A close below this week’s low at 4104 is bearish.
Upper KRAs: 4200; 4300-4326
Lower KRA: 4104-4096
RUT
The RUT has been in a well defined Balance Area for two months. A close above 1816 is likely very bullish. A close below 1695 is likely very bearish and would imply a downside washout is probably in progress.
Upper KRA: 1816
Lower KRA: 1741; 1695
DOW
The DOW is making lower lows and highs since the May 1 top.
Upper KRA: 33819-33646
Lower KRA: 32586
Internals
The 10-day and 5-day MAs of NYSE advancing issues have been in a tight range for the past two months, perfectly reflecting the whippy net-nowhere price action of the same period.
IF breadth begins to expand there is a LOT of room to the upside, internally and price-wise.
30m SPX/Breadth
A “real” breakout above 4200 in the SPX will very likely be accompanied by a dramatic expansion in breadth. So far, breadth has been quite tepid in the rally off the 4104 low of last Wednesday.
VIX
VIX is off its recent lows, but is still unable to sustain a level above 20.
Thoughts:
The NDX/RUT ratio is at all-time highs. At a minimum, the rate of change of this ratio is very unlikely to continue.
The breadth of the US stock market is not consistent with sustained bull runs lasting multi-months or years. This can very quickly change and if breadth begins to expand the broader market and indices could fuel much higher prices. If this were to occur it is likely the ratio of outperformance in the NDX vs other indices is likely to narrow to some degree.
With the SPX right at the 4200 level that is a MAJOR inflection point, carefully watch price action next week. Last week’s low in the SPX at 4104 is the critical downside level that must hold under any immediate bullish scenario.
The RUT is in a tight, 2 1/2-month Balance Area. It is the index most highly correlated with NYSE market breadth. As Breadth goes, so will go the RUT.
US 10-yr Notes
Favor shorts, but expect upcoming “drama”.
US Dollar
Same comments for Notes apply to the US Dollar.
Gold
If recent lows break Gold could accelerate lower.
Crude
Crude is between important levels.
