I noted last week the S&P had pushed through 2,400 and could be poised to move higher.

I doubt anyone expected a breakout of this magnitude. We are so conditioned to see a resistance test, minor decline, resistance test, repeat. The blowout on Thr/Fri was finally a real breakout that has no qualifications attached.

The charts are bullish with the exception of the Russell. The big cap indexes are clearly in an uptrend with the oscillators expanding to the upside. The worry over the prior weeks about the sell in May and go away cycle have been erased at least for the present.

I posted the Advance/Decline line chart for the S&P saying it was the most bullish chart in the market because it had clearly broken out to the upside. It is even more bullish this week. The A/D line over the last two weeks mirrors the spike in February that ended with a 130 point sprint in the S&P. Currently the index has rebounded 88 points from the May 17th lows. We could have further to run.

The Dow A/D line has also broken out and looks significantly better than last week.

If there is anything to worry about this week, it is that the market is suddenly too bullish. There is more than likely going to be some more consolidation before we move too much higher. I would love to be writing this next week with the S&P over 2,450 and that is entirely possible. Sometimes when markets base as long as we have since March 1st, the breakout can be astounding. The trader phrase is "the wider the base, the higher in space."

The range since March 1st has been roughly 2327 to 2401 or 74 points. When the index broke above that 2,401 level, the target should be 2,475 after adding the width of the range to the top level of 2,401. That would be an excellent target and entirely possible, if the big cap tech stocks continue to lead.

This is a similar chart from late 2015. I have not changed anything on this chart since it was first constructed in early 2016. The range was 324 points making the target on a breakout at 2,458. We are nearly there and it will be interesting to see how the market reacts when that level is reached.

The Bullish Percent Index for the S&P improved slightly but has a long way to go. This is a slow moving chart because of the way the P&F charts are structured.

We have a textbook breakout on the Russell 3000. The push through resistance, minor decline to test that level as support, then a springboard breakout to a new high. This chart suggests the rally has legs because it has breadth. This is 2,953 stocks and not just a few big caps leading the charge.

I also said last week "it is amazing how fast market internals and market sentiment can change." Who would have thought on May 18th we would be sitting at massive new highs in the market only 10 trading days later.

If the S&P can move over 2,450, the short covering and price chasing could turn into a feeding frenzy. Unfortunately, all it will take is one major, unexpected headline to kill this sentiment. Keep your fingers crossed.

Enter passively and exit aggressively!

Jim Brown

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