Stocks extended gains also on Tuesday, leaving the top-callers frustrated yet again. Just as I wrote yesterday, with new all-time highs being made again, it's hard to turn bearish at this juncture as most of the charts I'm looking at, aren't flashing newly arriving signs of danger.

What about those pesky non-confirmations? They aren't an immediate reason to act, because the S&P 500 price action is all what trading the index is about - spotting non-confirmations that don't get translated into corresponding price action, won't magically add up to one's trading equity. That's because these can have quite a staying power, and get resolved at very different price levels - and also through underperformance disappearing rather than dragging the one outperforming lower.

Regardless of extreme greed creeping in, the bull run is still on. The path of least resistance in stocks remains up as the put/call ratio isn't rocking the boat.

S&P 500 in the Short-Run

I'll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Clearly in the driving seat, the bulls are back. The breakout above the early Feb highs has a high likelihood of being confirmed by the third consecutive daily close, and yesterday's decreasing volume during sideways price action shows that the bears are unwilling to engage the bulls. In other words, that's a daily consolidation to me in what's a slow or not so slow, rip your face off rally.

How much do the credit markets support the upswing?

The Credit Markets' Point of View

High yield corporate bonds (HYG ETF) also consolidated yesterday, and didn't lose the bullish bias of itsii recent swing structure. The bulls still have the initiative, and can press again for higher prices. Pretty much the only thing that could contradict this scenario, is a sizable red candle on volume beating yesterday's one hands down.

Investment grade corporate bonds (LQD ETF) declined yesterday, but I see that in no way as a start of a new downleg. I rather view that move as influenced by the development in Treasuries.

Long-term Treasuries (TLT ETF) pushed lower yesterday too. On one hand, rising yields lend credibility to the notion of real economy recovery, but even the sideways move we've seen since April, doesn't put the stock bull in jeopardy. Should Treasuries spike though, that would be a different cup of tea.

For now, I don't see them having issued an advance warning for stocks.

Volatility, Market Breadth, and Tech

$VIX is showing no signs of being about to rise in earnest, as every intraday upswing has been rebuffed lately. The trend of generally decreasing volatility goes on for now.

It might seem suspicious that yesterday's higher close was associated with a daily decline in the advance-decline line, but that isn't so in this case. The reason is the tech - the key engine of S&P 500 growth.

Just what is a daily setback to technology (XLK ETF)? A daily obstacle to be taken on in the near, or more precisely nearest, future. Crucially, semiconductors (XSD ETF) are confirming the move, pointing to more upside for the sector to come shortly.

Needless to say, that's broadly positive for the S&P 500.

From the Readers' Mailbag

Q: Thanks as always Monica!! If possible, would like to get your thoughts on the importance of the RSI (daily) breaking 70 and approaching 75 here.

A: RSI is an indicator that takes quite an underlying price move to turn around - it's not the most sensitively reacting tool in my arsenal. That's why I am not reading too much into its values, but assess it in combination with the many other clues you're used to see me featuring, and many more that I consult daily on top. Whatever the current RSI value, I don't view it as an immediate sell signal, if that forms the gist of your question.

Summary

Summing up, the S&P 500 keeps extending gains, and today's session appears to be as smooth a sailing as was the case yesterday. Credit markets aren't saying no, the headlines aren't against, and stocks keep predictably reacting to the prevailing narratives of our days. Undaunted, they're rising after shallow intraday corrections.

Aren't the bulls getting a bit too complacent? Signs thereof are apparent. Does it mean the market will immediately turn on a dime? Absolutely not.

As a result, sensibly riding the stock upswing driven largely by tech, consumer discretionaries and communications, remains my preferred course of action. Especially since the Fed has been opening the spigot again lately.

Thank you for reading today's free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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Stocks extended gains yesterday, and don't appear to be topping out today. With new all-time highs being made again, it's hard to turn bearish at this juncture as most of the charts I'm looking at, aren't flashing newly arriving signs of danger.

And as regards non-confirmations, they can go on for longer than most traders can remain solvent, if I take liberty and paraphrase the point about market irrationality. And it sure seems irrational to quite a few, given the state of the real economy's disconnect from the stock market.

But my purpose is to read and trade the stock market, and present you my view of the outlook based on the extensive radar screen I consult daily. Keenly watching the rationale for an upside move's potential while first of all mindful of the risk per (open) trade. That's the only way to keep adding to the profitable tally over weeks and months.

Such were my yesterday's notes as to non-confirmations, and correction vs. higher prices scenarios:

(...) Non-confirmations can drag on for a long time without ushering in a meaningful correction. They can get less pronounced by a prolonged sideways move in prices. Alternatively, a sharp and temporary correction can arrive with little fanfare. Which way do I see things turning out over the coming weeks?

Wednesday's correction attempt failed without much in terms of a follow-up. That's a point for a continued slow grind higher, or for a sideways consolidation as minimum. In other words, the correction isn't likely arriving very soon - but over the coming weeks, it most probably will. The outlook for days just ahead, looks rather bright to me.

Let check again whether this theory holds water.

S&P 500 in the Short-Run

I'll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The bulls are back in the driving seat, and ever more solidly so. Volume is returning, which supports the clear breakout above the Feb highs hypothesis. By clear, I mean a slow or not so slow, rip your face off rally.

How much did the credit markets support the upswing?

The Credit Markets' Point of View

High yield corporate bonds (HYG ETF) are coming back to life in what's likely to turn out as a start of the next upleg. It's true that investment grade corporate bonds (LQD ETF) declined yesterday, but I see that in no way as a start of their downleg. In other words, a non-confirmation of no more than a very brief shelf life, no obstacle for the HYG ETF to move higher next.

I take it as both high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) largely pointing higher and confirming each other's moves. The longer they keep the sideways-to-bullish bias, the better the likelihood of their renewed, strong move higher in earnest, and by extension, for stocks too.

Yes, stocks are ever more extended relative to the HYG:SHY ratio, but the latter is at least moving higher in unison now. Stocks are getting my benefit of the doubt, and riding the upswing with a reasonably tight stop-loss is my preferred course of action in these circumstances.

S&P 500 Market Breadth, Smallcaps and Tech

Finally, there's a solid upswing in the advance-decline line. The weak performance of recent days seems over, and the broader the advance, the better for the health of the unfolding S&P 500 move higher.

The Russell 2000 continues lagging the S&P 500, but is at least moving higher too. As we have seen previously, such underperformance is not necessarily an obstacle for the 500-strong index to go up, especially given the technology prominence in its weighting.

Technology (XLK ETF) continues its smashing ride, and semiconductors (XSD ETF) leaping higher yesterday, support its upswing to go on. Needless to say, that's broadly positive for the S&P 500.

Summary

Summing up, the S&P 500 extended gains on Monday, and looks set to do the same also today. Volatility keeps moving generally lower over the past weeks, and doesn't appear ready to bounce in the immediate future. Put/call ratio is tentatively declining again, and sentiment is moving into extreme greed. How long will the current upswing last before taking a breather?

One isn't on the very horizon, so let's keep riding the upswing as the path of least resistance still points higher.

Thank you for reading today's free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading StrategistSunshine Profits: Analysis. Care. Profits.

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Friday's upswing took stocks to the all-time highs again, and the tech sector was in the driver's seat. Healthcare and consumer discretionaries also did well, but that's far from enough as the market breadth indicators keep flashing non-confirmations. And they're not alone.

Non-confirmations can drag on for a long time without ushering in a meaningful correction. They can get less pronounced by a prolonged sideways move in prices. Alternatively, a sharp and temporary correction can arrive with little fanfare. Which way do I see things turning out over the coming weeks?

Wednesday's correction attempt failed without much in terms of a follow-up. That's a point for a continued slow grind higher, or for a sideways consolidation as minimum. In other words, the correction isn't likely arriving very soon - but over the coming weeks, it most probably will. The outlook for days just ahead, looks rather bright to me.

Let check whether this theory holds water.

S&P 500 in the Medium- and Short-Run

I'll start today's flagship Stock Trading Alert with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

While last weeks' bullish price action goes on without end in sight, it's happening on ever lower volume. The bears aren't though willing to step in, which makes higher stock prices likely, regardless of the bulls being stuck at two key resistances (the upper border of the rising black trend channel and the zone around the Feb and recent all-time highs) over the last few days.

The bears missed another opportunity to make a real stand on Friday, and the bulls turned the session around. The volume barely noticeably rose, but still rose - boding well for Monday's session at the very least.

How much did the credit markets support the upswing?

The Credit Markets' Point of View

High yield corporate bonds (HYG ETF) made no progress on the way up. The decreasing volume still paints a picture of a short-term consolidation, which goes well with the bears being unable to reassert themselves.

Another piece in the corporate credit market puzzle are the investment grade corporate bonds (LQD ETF) - and their rise negates the HYG ETF hesitation in my view.

Such were my Friday's observations on the leading credit market ratios:

(...) Both high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) - rose yesterday The longer they keep the sideways-to-bullish bias, the better the likelihood of their renewed move higher in earnest, and by extension, for stocks too.

After Friday, stocks got even more extended relative to the HYG:SHY ratio. Stocks are clearly willing to rise without taking a cue from this key ratio.

The yields in long-dated Treasuries (TLT ETF) keep rising - or at least, they don't indicate that some flight to safety would be going on. They're underscoring that the wheels of real economy are starting to turn since the late spring horrendous data went on a broad recovery. At their own pace and unevenly, naturally.

S&P 500 Market Breadth and Technology

The state of weekly advance-decline line is one big red flag as higher stock prices are supported by less and less advancing issues, advancing volume, or new highs. Even the bullish percent index is weakening a little.

Does it mean the bull market's end is in sight? Absolutely not, but a correction or soft patch wouldn't be totally unexpected. Does the above chart make it imminent? Not. So, what's a trader to do about it?

My favorite approach over the past weeks of such precarious readings, has been tight open trade management with relatively frequent updates of the stop-loss parameters in order to lock in open profits. Unless I attempt to jump in on the brief momentum of the short side, which needn't really always pay off.

The stock tide keeps rising, and I would compare that effort to catching a low in an individual wave, using techniques based also on the short-term market breadth just next.

The short-term offers a weakening view of not only the advance-decline line that certainly doesn't confirm the stock upswing. On the other hand, it doesn't m ake a correction imminent - unless the generals leading the stock advance roll over, that is.

Imagine that each S&P 500 stock would have equal representation in the index, and that weights would no longer matter. That's exactly what the equal weight S&P 500 ETF (RSP ETF) is all about.

And it reveals a very different view of the stock market that's still trading below the early June lows. In other words, it's been the tech sector that's been driving the index higher.

And technology (XLK ETF) is indeed pushing it higher, and not only because of Apple (AAPL) becoming a $2T market cap company. The other heavyweights are responsible for the lion's share of the gain - and perhaps more tech companies would start participating now that semiconductors (XSD ETF) finally made a daily reversal.

Summary

Summing up, the S&P 500 went on its path of higher prices, rebuffing another downswing attempt on Friday. While the non-confirmations are concerning, they aren't an immediate obstacle to an upswing over the coming days, but I certainly look for them to force stocks to go sideways as minimum - sooner or later over the coming weeks.

As for now, the very now, the path of least resistance remains higher, and better be approached with a tight stop-loss as smallcaps aren't willing to participate and market breadth issues are a chapter in and of itself.

The stock bull isn't over yet though, not by a long short, and I look for the non-tech sectors to take up the baton once the much awaited correction actually arrives - or more precisely, when that correction starts getting long in the tooth, I look for the cyclicals to get moving.

Thank you for reading today's free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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Stocks had the perfect excuse to decline based on Fed's guarded tone and no yield curve control around the corner - but apart from the late Wednesday selloff, they didn't. Yesterday's early U.S. session selling pressure aided by weak new unemployment claims, didn't last long - and the bears didn't muster enough strength to come back and try mightily again.

The chart clues favoring a daily downswing, didn't usher it in, That's telling in and of itself.

Such were my words at the onset of European trading earlier today:

(...) The S&P 500 didn't waver towards the closing bell, and neither in the overnight session. The tendency of post-Fed moves to carry over to the next day didn't work out this time, and the short-term swing structure makes it justified to expect stocks to go on with their slow grind higher as the bull market isn't over by a long shot.

A few more thoughts on the short-term swing structure and the bearish overtone mentioned in the preceding Stock Trading Alert. These offer odds for a move to continue, to reassert itself after a brief appearance - and that can happen via an intraday or late-day reversal.

That didn't happen, and the selling pressure at the entry to the European session is likely to fizzle out just as the attempts during second half of yesterday's trading did.

So, if stocks couldn't just slide and scare out the bulls, they're likely to meander sideways to higher next. Those question marks, non-confirmations and tensions all around that result in lower volume behind each print of higher stock prices, needn't derail the bull at all.

Sure, it means lower credibility of higher prices, weaker internals and occasional bear raids (are we seeing it arriving in today's premarket?) - but unless things in the real world take a catastrophic turn, market participants are likely to be adding to their existing (long) positions, and despite the challenging situation on the ground (what an understatement!), the bears will be under pressure to throw in the towel until elections start to really bite.

How likely is that?

S&P 500 in the Medium- and Short-Run

I'll start with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

Such were my comments on the weekly chart almost 2 weeks ago:

(...) Bullish price action for many recent weeks on volume that isn't yet inviting increasing participation of the sellers. This fact alone bodes well for higher stock prices in the medium-term, but the buyers will meet a set of two key resistances shortly.

It's the Feb all-time highs that are drawing nearer day by day, and the upper border of the rising black trend channel.

The buyers met these resistances, yet the bears didn't step in - and that fits the ongoing slow grind higher hypothesis, which has been working for weeks and months.

The caption says it all - and the bears don't appear to be at their strongest exactly. Window of opportunity to strike is increasingly more closing down.

Let's check the credit markets next.

The Credit Markets' Point of View

High yield corporate bonds (HYG ETF) have turned higher yesterday, and did so on volume that didn't lag behind. That's a reason for cautious optimism among the bulls - especially since it was mirrored by stabilization in investment grade corporate bonds (LQD ETF).

Both leading credit market ratios - high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) - rose yesterday The longer they keep the sideways-to-bullish bias, the better the likelihood of their renewed move higher in earnest, and by extension, for stocks too.

Both stocks and the HYG:SHY ratio have kept as extended as they have lately been. As a result, no hint is coming forward from this chart alone.

Long-dated Treasuries (TLT ETF) are trading with still rising yields, which sends a signal about the bond market taking the economic recovery story seriously.

The stocks to all Treasuries ratio ($SPX:$UST) still remains in an uptrend - I can't call it to have rolled over. Not with a qualifier of "just yet", but at all - the higher highs and higher lows are clearly visible, and a textbook definition of an uptrend.

S&P 500 Market Breadth

The short-term view isn't very clear, but I lean in the direction of the advance-decline line's lackluster recent performance as being likely to eventually resolve with a move higher, rather than with ushering in a stock downtrend.

Summary

Summing up, the S&P 500 refused to decline more when it had quite a few good reasons to do so yesterday. Today's premarket downswing has taken it approximately to yesterday's opening levels, and odds are that this dip will be bought again.

That's true regardless of the weakening Russell 2000, which however doesn't appear to be under distribution - not by a long shot. Emerging markets almost managed to close their yesterday's bearish gap, and technology still continues to lead irrespective of weak semiconductors. The rotation theme in the recovery story remains on, and credit markets will shine light as to when stock strength would return.

Thank you for reading today's free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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