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With All-Time Closing Highs Comes Reduced ST Traction - Morning Market Squeeze

Key Tactical Takeaways:

> Tuesday's trivial 0.11% break to a new all-time high close by the S&P 500 speaks to the fact that while a broadening out sector participation of late is supportive of the longer-term trend, recent sentiment-related extremes and seasonal headwinds should make a SUSTAINED upside extension difficult from here.


> Yesterday's closing bid below the ST Noise Buffer at 0.67% has now exposed the 10-Yr to a test of the far more critical  NT Trend Stop at 0.63% ahead of the FOMC minutes.


> Despite the recent pull back in longer-dated rates, the reflationary rotation remains very much on course. If XLF is going lock onto an ongoing upward rotation in rates, it must hold 25.55/25.25 on a closing basis this week.


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Some Quick Thoughts:

Simply put, numerous sentiment measures are high, but not at extremes.  We're talking about the kinds of levels that cause professional participants to take notice, perhaps start to trim some risk exposure, and dust off any indicators they might like to use when looking for big turning points. Specifically, these are the kinds of sentiment extremes that warn us we're getting close to a big turning point, but remind us that such a turning point can still be a ways a way. Along the way to that big turning point that sits somewhere in the distant future, there will be turbulence, but that turbulence will likely produce better entry points.


With the S&P 500 starting to make itself at home > 10% above the 200-day moving average, we'll be dusting off our detrended, big turning point model and adding it to this report on Thursday.  It's just that volatility has been so low of late, and we need greater than 1 σ intra-day moves to occur in order for the model to generate any kind of a signal.


On the Event-Driven Stats page (p. 8), we look at the forward performance, along with the intra-period gain and drawdown risk, in the 1, 2, 3, 4 and 12 weeks after the S&P 500 closes at an all-time high after a correction of > 20%. The results speak to the fact that...


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