As stocks bound from strength to strength, I recently outlined the case that a market correction is on its way. The bears point to the increase in insider trading, the four-plus years of the current bull run, declining earnings expectations and the increase in stocks purchased on margin. Now it’s time to look at the indicators that support the bull’s case. Here are five of them:
1) Breadth of Rally: Bespoke Investment Group recently took note of the broad participation in the current bull market. Some 31.6% of S&P 500 stocks made new 52-week highs on April 11. As Bespoke points out:
When an index like the S&P 500 is making new highs, technicians like to see a large number of individual stocks in the index also making new highs. When that is happening, it means there is broad participation in the rally, which is indicative of a healthy bull market. That’s certainly happening now.
2) Investor Sentiment: It continues to be strong, according to these charts from market strategist Ed Yardeni.
3) Individual Investors: During Q1, some $60 billion headed into mutual funds and ETFs that hold U.S. stocks, according to research firm TrimTabs. As Hibah Yousuf at CNN Money points out: “That’s already more than any full calendar year since 2004. And if the pace keeps up, this year’s inflow would be the largest since 2000.”
4) Moving Averages: Both the 50-day and 200-day moving averages of the S&P 500 Index have been trending up this year, according to this chart compiled by Yardeni research.
5) Sector Strength: Most of the S&P 500’s major sectors are also trading above their 200-day moving averages.
Photo Credit: Veart
