S&P 500 leads from the front

US markets have been particularly strong and none more so than the S& P 500, now within touching distance of the 1950 level.

The New York stock exchange
Source: Bloomberg

A lack of optimism has never been a criticism that could be thrown at American investors, and the recent performance of the S&P 500 demonstrates their current thinking.

Considering we are a month past the last US reporting season it is somewhat surprising how overbought the index is. The corporate landscape was, on the whole, positive but not to the same degree as we have seen in previous quarters. Certainly not to the extent that we should have anticipated a continuation of new record highs being set by the S&P 500.

Looking at the chart we, can see the S&P 500 has been running in a very strong bullish trend for a long time. The most recent move higher has seen an increased divergence away from the 200-day moving average and the longer term underlying trend. The relative strength index is now also in overbought territory and the fear must be that we are due a correction as the markets have maybe got a little ahead of themselves. A move closer to the 50-day moving average and closer to the 1900 level would offer bulls a much more attractive entry level. Only a break below the 200-DMA would cause me to fear that the longer term move higher is over.

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