Apparently the hits just keep on coming. The SPX continues to push higher. And at this point, it’s in over-bought territory, up nearly 5% for the month of April.
If you look back in this blog series a couple months ago there was some discussion around the possible decline in forward PE ratios and how that would decelerate the S&P 500’s rate of ascent. In essence, the trend had been at about a 30 PE, implying a price move over 5000 for the index in 2021. A drop in that PE ratio would lower the outlook for the year.
If last week is an indicator, the PE ratio is still projecting out over 30 for the year. This would imply there is a fair amount of up-side for the rest of 2021.
The problem with getting excited about this trend is it’s such a short-term view. A week does not a trend make. And, like often happens, there are competing technical signals.
In the short-term, the SPX looks over-bought. It’s well above its 50-day moving average and it’s more than 1.5 standard deviations above the 21-day trading average.
This does not mean the markets must pull back. It does imply a short-term pull pack is increasing in probability though.
On a longer-term projection, it looks like things should move toward 4215 or so. Short term, a move towards 4140 may be possible (with more significant support at 4096).
A quick look at the futures Monday morning imply a negative open. Watch for 4140 / 4096 support. If those levels fail, a more significant down-turn may materialize. However, the probability of this occurring appears to be low at this time.
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