Market Indices Hold Near Highs, Defying Correction Expectations

There has been subtle distribution across the indices. While price has held up internals have not been as favorable. But we remain in a consolidative phase. And with indices of all varieties holding near their recovery highs the sentiment of traders we speak to remains incredibly bearish. We read this as a positive sign.

We also read as positive the market’s ability to hold while gold and the dollar enter what for now appear to be counter trend moves. All year stocks had marched higher as the dollar’s value eroded. Now with the US Dollar Index moving above its 50 MA for the first time since April and technically poised to go higher, stocks are simply pausing, not aggressively retreating as one would expect given the inverse correlation between these asset classes.

Meantime the aggressive advance on the stock indices since March has signaled many of the events that are unfolding today: signs of a recovering economy and a banking system that, while far from healthy, is far from the insolvency that was threatened just a year ago. Again, one would expect stocks to sell this news when it occurs, but it has yet to happen.

Not long ago we surmised that there has been a paradigm shift in the market. That it is now focused on returned growth and the prospects of sharply accelerating earnings in the year ahead. Every day the indices continue to quietly base adds credence to that assertion. And a solid break out to new highs and another leg higher would confirm it.

Most of our stock suggestions on our sister blog have been mired in neutral these past few weeks, not triggering or stopping out as the market chops up position traders. But we continue to have suggestions for stocks that we think have the ability to ignite on another leg higher and we invite you to review our ideas.