Stocks have yet again approached the all-time highs, but on volume that wasn't this low in months – that's a red flag. The stimulus talks haven't really progressed, but markets there is no jittery sentiment as the put/call ratio stubbornly clinging to its lows show.

But let's look under the hood of the stock advance as that fittingly illustrates all the above.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The bulls countered, but the volume leaves a lot to be desired. This is making the renewed advance to the Feb highs vulnerable in the short-term as the signs are far from aligned, to put it mildly.

Enter the credit markets.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) haven't exactly recovered yesterday, which means they aren't pointing in the same short-term direction as stocks.

Neither are investment grade corporate bonds (LQD ETF) – they have been declining for four days in a row, and a bottom can't be called just yet (please see this and many more charts at my home site).

Both leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – are currently pointing down, and one daily HYG:SHY turnaround doesn't change that.

It's concerning to see high quality debt instruments sell off, and that includes longer-dated Treasuries (TLT and TLH ETFs) too as they both moved below their Tuesday's intraday lows. It's still too early to call the bid for these instruments as returning.

The overextension of the S&P 500 (black line) relative to the HYG:SHY ratio is even more pronounced now. And also more concerning given that LQD:IEI is momentarily weaker than HYG:SHY. With its advance, the S&P 500 is cutting into an increasingly thinning air these days.

Summary

Summing up, yesterday's S&P 500 upswing bucked the warning signs of many a non-confirmation. While the magnetism of the all-time Feb highs is at play, the credit markets have been diverging for quite a few days already. Neither the smallcaps or emerging markets have bested their recent highs. Yesterday's increase in the S&P 500 advance-decline line didn't smash daily records either, which just adds to the long list of non-confirmations.

Thankfully for the bulls though, technology isn't leading to the downside, and neither are semiconductors. Still, the above makes for a long list of worries for the stock bull to climb – but that's what bull markets do.

As traders, carefully considering each trade's risk-reward perspective, is the best course of action given the presented circumstances. Some would even say – when in doubt, stay out.

We encourage you to sign up for our daily newsletter- it's free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Monica Kingsley

Stock & Oil Trading Strategist

Sunshine Profits - Effective Investments through Diligence and Care

Monica Kingsley is a trader and financial markets analyst. Apart from diving into the charts on a daily basis, she is very much into economics, marketing and writing as well. Naturally, she has found home at Sunshine Profits - a leading company that has been publishing quality analysis for more than a decade. Sunshine Profits has been founded by Przemyslaw Radomski, CFA - a renowned precious metals investor and analyst.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.