It has been a great few weeks for stocks. The major indices have edged higher in nine of the last 11 sessions to April 28. The upward moves to the highest levels since June 2008 are impressive and indicate what appears to be a potential breakout on the price charts after the multiple tops. The DOW and Russell 2000 are up over 10% this year.
My investment advice would be to ride the gains, but also take some profits.
Investor sentiment is extremely bullish and points to additional gains.
Take a look at the new-high/new-low (NHNL) ratio, a measure of the number of stocks touching a new 52-week high versus the number of stocks that have declined to new 52-week lows. The theory is that, in a bullish market, investors quickly bid stocks up, and you see a rising NHNL ratio. When investors get nervous, fewer new highs are made and the NHNL ratio will tend to decline, thereby giving you a warning. At the other end of the spectrum, bear markets have more new lows than they have new highs.
The trend of the NYSE NHNL had been edging higher, with 190 of the last 202 sessions being bullish. In the technology area, 144 of the last 160 sessions have been bullish. The trends on both the NYSE and NASDAQ are edging higher.
My near-term technical view is bullish, but you should watch the overbought technical condition.
A technical view of the key indices is as follows:
The near-term technical picture is moderately bullish on above-average Relative Strength (RS), so there could be more gains in the near term.
The index is holding above 2,800 and its 50-day moving average (MA) of 2,756.
There is still some near-term topping on the chart, but we are seeing a breakout higher.
The near-term technical picture for the DOW is moderately bullish on above-average RS, so there could be more gains.
The index is above its 50-day MA of 12,210 and 200-day MA of 11,352.
In the broader market, the near-term technical signals for the S&P 500 are moderately bullish on above-average RS.
As we said, there was multiple tops on the chart, but the index has broken higher.
Failure to hold at its 50-day of 1,315 would be bearish.
The near-term picture for the Russell 2000 is moderately bullish, but on above-average RS.
The index is above its 50-day MA of 820 and 200-day MA of 731.
The key is to ride the profits but to also make sure you have some protection against weakness via Put options.