As Long as These Conditions Persist, the Market Will Keep Going Up

I’ve been asked if the ongoing divergence between the Composite Help Indicator and the S&P 500 (SPX), black arrows #2, is a sign the bull market has run its course, states Ian Murphy of MurphyTrading.com.

This is happening because the number of stocks making new highs is declining rather than new lows increasing. So long as the Pessimism Indicator (new 20-day lows) stays below 10% there are still legs on the bull.

Compare the current divergence to the previous one (black arrows #1) and note how the first divergence was accompanied by rising pessimism, which eventually crossed the 10% threshold—also look at how close Composite was to zero.

Currently Pessimism is not rising, and Composite is still above zero. As long as these conditions persist, the market will keep going up. In my personal account, I’ve recently added to my long position in US equities.

A friendly reminder, US equity index futures for December expire this Friday. The Friday after that is Christmas Day, so western markets will be closed, and the Friday after that is New Year’s Day when global markets take a break.

In light of these abbreviated trading weeks and reduced volumes on exchanges, it’s time to consider how to manage positions ahead of the holiday period.