Surface-Level Rally Looks For Lasting Support
The indexes have bounced and quickly moved to new highs but a broader look at the evidence shows a slower turn higher.
Key Takeaway: While risk appetite is returning and stocks have made new highs, evidence supporting the sustainability of this rally has been lacking.
A broad look at key risk on / risk off ratios shows the return of a healthy appetite for risk. Whether this is reflexive rally to resistance or the beginning of a sustained (and investable) leg higher remains to be seen.
On the surface, last week did what bull markets tend to do: it produced index-level new highs. The S&P 500 finished last week with three consecutive new all-time highs.
The return to new highs was supported by more stocks making new highs than new lows on both a daily and ten-day basis. That is good news and it puts a smile on my face.
The combination of new highs from the index and a robust number of net new highs has bullish implications going forward.
The return to strength is even more pronounced on a global basis. While the percentage of global markets above their 50-day averages collapsed last month, the percentage that remained above their 200-day averages remained above 50% and that helped support the rally in recent weeks. Now, both measures are above 80%.
But beneath the surface, breadth got more washed out than the indexes did. The quick return to new highs by the indexes may overstate the health of the recovery that has been seen to date.
