Over the past week we saw a good move up in the S&P 500 Index (SPX), however, our core market health indicators didn’t show a lot of strength. They all moved up, but without conviction. Market internals continue to diverge from price which suggests further consolidation.
Our measures of risk which fell sharply in our last update didn’t recover much this past week. They are all still positive, but at fairly low levels. This signals that market participants are finally starting to recognize the potential of a larger decline in the market.
Our measures of the economy and market quality recovered slightly. Our measures of trend and strength rose from deep oversold levels, but not nearly as much as we would like given the strong price action. We suspect that a move well above 1600 in SPX will be necessary to move these indicators into positive territory.
It is disconcerting to us that the market is so close to all time highs and our indicators are so far below zero. Add to this the fact that market participants are starting to recognize the potential risk and we get a picture of increasing instability.