The SPX saw a nearly 50-handle rally last week from Monday’s lows of 1358.79 to Friday’s highs of 1406.64. The weekend news was light and market participants are waiting for a catalyst on either side. There are two key foreign reports this week (China PMI, Germany PMI) which could send SPX futures higher overnight.
I will be looking to Treasurys to confirm another move higher in the SPX. 10 Year Notes yielded nearly 2.4% on March 20th; the SPX was in the range it is today. While the two markets can dislocate, bond market sentiment is markedly different than equity market sentiment. In order for the SPX to move significantly higher than 1422, Treasurys will need to confirm.
Today’s Overbought condition is 1408; Oversold condition is 1392. The range has narrowed some and I expect a sideways-to-slightly-negative SPX as we cool down from last week’s rally. I’m a buyer of any Oversold condition as I expect new yearly highs on the SPX by mid-May. However, should the SPX continue to test my Overbought levels, I will not be seeking short exposure.