Forget What the Stock Market Bulls Are Saying: Red Flags Are Surfacing
May 08, 2013
The Ben Bernanke-driven stock market rally continues in full force and is unabated, but I really question the rate of the advance and believe stocks remain overextended at this juncture.
The S&P 500 made another record high above 1,600 last Friday, but making that move to above the magical level came slowly and cautiously, which makes me feel somewhat uneasy.
The breakout—above the multiyear top near 1,565—is positive, as shown on the chart below, but the move was associated with light volume, which suggests a bearish divergence, based on my technical analysis.
Taking a look at the blue ovals on the stock market chart below, you will notice the possible pullback that has occurred after every six-month rally from November to April over the past three years from 2010 to 2012.
Whether we will see another retrenchment in the stock market this year is unknown, but based on the rate of the gains so far, I feel there is an above-average likelihood of this happening.