Can Anything Topple Mr. Market?

(Seeking Alpha) – After coming within a hair’s breadth of falling into bear market territory late last year, the S&P 500 Index (SPX) reversed its slide and is now well on its way to recovery. Unlike the market rallies of the past couple of years, this one is far more technically vibrant. As we all know, however, every rose has its thorn and the equity market is no exception. In today’s report, we’ll discuss the one thing that could potentially trip up the stock market later this year, namely continued strength in the U.S. dollar. We’ll also look at the latest signs which show the market’s latest rising trend is technically and fundamentally secure for now.

No market is completely immune from obstacles which can potentially reverse a rising trend. That said, the current U.S. equity market is as strong as it has been in almost a year. For comparison purposes, equities sold off sharply in February 2018 before establishing a decisive bottom last March. Then in April, the SPX slowly began its ascent until peaking in September. See the chart below.

After the September 2018 peak, stocks were sold heavily in October before establishing a low in late December. So what exactly differentiates the February 2018 decline in the SPX from the October 2018 plunge? The difference is that during the February-March bottoming process – and even well into April – there were still an above-average number of stocks on the NYSE that were making new 52-week lows. To be exact, I consider anything above 40 per day to be an excessive number of new 52-week lows. The new lows during the late winter and early spring of 2018 were excessive by that definition, and it wasn’t until the SPX had decisively established an uptrend in May that the new lows were significantly diminished.