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“Once you know where the roller coaster is going, are you in for the ride?” – Robert Fulghum

Morning stock market summary

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It’s looking like a flat open to cap off what has been a very strong week, and once again the Nasdaq is outperforming after Adobe (ADBE) reported better-than-expected earnings last night after the close.  It’s a quiet day for data, but Fed Governor Waller had some relatively hawkish comments and the University of Michigan Sentiment report will be released at 10 AM.  The key item to watch in that report is inflation expectations.

139 years ago today, the first roller coaster in the United States opened in Coney Island, and for ‘just a nickel’, customers could get on board for the thrill of riding six miles an hour through twists and turns of metal and wood.  Roller coasters have come a long way since their first introduction in terms of both speed and ups and downs, but If the stock market is a ride, these days the only direction it goes is up.

The S&P 500 closed back above 4400 yesterday and finished in positive territory for the eighth time in ten days.  For the last ten trading days now, the S&P 500 has closed more than two standard deviations above its 50-day moving average (what we call short-term ‘extreme’ overbought levels), and yesterday almost closed three standard deviations above its 50-DMA (+2.97). That was its most overbought close since November 2004 which was right after George W Bush won re-election over John Kerry.

Streaks of at least ten trading days of extreme overbought (OB) readings for the S&P 500 haven’t been especially common over the years. Since 1952 when the five-trading day week started, there have now been 35 such streaks.  The most recent was in April 2021, and the longest was 17 trading days in December 1995.

Looking at more recent history, the chart below shows the S&P 500 going back to 2000 with the red dots showing each prior ten-day streak of extreme overbought closes (each dot represents the 10th trading day in the streak).  While none of these prior streaks occurred near a market low, they didn’t represent short-term or long-term peaks either.  The closest any of these streaks occurred to a peak was in April 2021- more than seven months before the ultimate peak.

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