Volume exploded higher over the last two days as a result of expiration.
A quadruple witching options expiration always increases volume significantly. The entire week was strong with bearish positions being closed because of the short squeeze, traders exiting covered calls to keep their stock from being called away and from price chasers hoping to board the train before it leaves the station for new highs.
The S&P was the only index to make a new high, but the other indexes also had a good week. On Thursday when the S&P hit new high territory there were 827 new highs on individual stocks compared to only 102 new 52-week lows.
The surge in volume was strong but internals turned negative on Friday. The broad market A/D was 2:1 in favor of decliners but the major indexes were barely negative. It appeared to be the small caps fading while the mid and large caps were holding their gains.
The month of June has been kind to the S&P, and it would be great to see next week continue the gains. The choppy A/D turned into a smooth uptrend as we end the quarter and the first half of the year.
With the Dow up 15%, Nasdaq 21% and S&P 18% for the year, we could be reaching a point where fund managers take some chips off the table before the summer doldrums. Remember, hedge fund managers cash in at the highs while retail investors buy the highs.
In contrast the small cap A/D line has been positive for June but looks a lot like a head and shoulders formation in progress. Small caps are normally weak during the summer doldrums when volume is light. They begin to move higher in September and throughout Q4. The weakness in small caps is being led by financials and chips but the weakness is widespread.
The correlation of the Dow and the Russell is diverging sharply. Both tried to rally but the Russell continues to lag. The Russell 2000 is a broad index of 2000 mid and small cap stocks. In this chart the 30 big caps are leading while the 2,000 "other" caps are fading.
The percentage of S&P stocks with a buy signal on a Point and Figure chart has risen 20% in June. Some 68% of S&P stocks are showing buy signals but still 10% below the April highs. While the market is overbought, there is still room to run.
The major indexes are testing uptrend resistance from each of the prior highs. The Dow is the most visible with the 26,828 as the new high level from October and the intraday high at 26,951. With the potential for a negative outcome from the G20 meeting, the Dow should have a tough time moving over 27,000 but anything is possible.
Multiple analysts have Dow 30,000 targets but those are just guesstimates. There are far too many geopolitical factors at play to project a high at that level at this time. We all hope their guesses come true.
The S&P has a similar pattern but has already closed at a new high. The favorable component mix for the S&P could lift it higher. The gains from June will be a drag once the option expiration volume passes.
The Nasdaq has serious resistance at 8109-8164. This was a solid top in April/May. With the big cap techs, especially chips, reacting to the trade issues and social stocks worried about regulation, this could be a real hurdle.
The FANG stocks are finally moving in the same direction and that is a strong positive if it continues. Google remains the laggard but there is a good rally underway. These stocks, when grouped with Amazon, represent more than 35% of the Nasdaq 100. Where they go the index will follow.
There is increased volatility in the market. The VIX rose sharply back to 15.48 late in the day when the market began to roll over. There is fear that the rally will not continue and that is actually good for the market at this point because it provides for the diversity of trade. If everyone was betting on a rally, we could quickly become over extended and then collapse.
I continue to warn not to be overly long ahead of the G20 meeting. The uneducated and blissfully ignorant price chasers believe Trump will pull a deal out of his pocket and the market will zoom higher. While that is certainly possible, it is not probably and there could be some serious disappointment. Be patient. The summer doldrums are coming.
Enter passively and exit aggressively!
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