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US equity markets look to be off to a sluggish start to the week after a long 4 July weekend. Expectations for impressive corporate data to inject some much-needed confidence into the markets are low; general perception is that the expectation-beating figures seen in previous quarters are unlikely to be replicated. Debate in the markets currently revolves around the ability of companies to warrant the price earnings multiples that their share prices are suggesting.
Looking at the S&P 500 specifically, 438 of the companies quoted are now trading over their 50-day moving average. This is hardly surprising, of course, as the index has spent much of the last month setting higher highs. From a technical point of view the divergence between the 200-day moving average and the index is beginning to look a little too large, and a correction could well be in order.
The trend is still bullish but there is an argument that it is now a little bit too over enthusiastic. Even if the markets had had a 5% correction, it would not have broken below the 200-day moving average.