Weekly Market Summary

The month of May ended with SPX up 2%. Treasuries once again outperformed, as did emerging markets. But the biggest winner was the Nasdaq. NDX closed at its highest level since 2000.

The lack of breadth has been a widely cited concern. New all-time highs have been met with only about 10% of SPX companies making even 52-week highs. In one respect, however, breadth is healthy: in May, every sector except utilities was higher, many by nearly an equal amount to SPX (2%).

Next week, SPX will surpass the 1995-96 record for number of consecutive days in which the index has traded above its 200-dma. These streaks normally last less than 300 days; the current one is already much longer, at 385 days (click for a list from Chad Gassaway).

It's fair to say that long streaks like these normally take place either at the beginning (1982, 1992, 2003) or end (1980, 1987, 2007) of a bull market.  This makes sense: bull markets are born in gloom and die in euphoria. 1996 and (so far) 2014 are exceptions, coming in the middle of a bull market.

Technically, the 2014 and 1996 periods are similar, a topic we covered recently (post).  Both followed years where SPX rose about 40%. And both started the year with a 3-month period of sideways trading. Should SPX continue to move higher in June, they will share yet another similarity as that is how 1996 unfolded as well.

Weekly Market Summary

Perhaps the dominant theme currently running across all markets is the fall in volatility. This week, for example, Jim Bianco noted that bond, currency and stock volatility are all at lows only seen once in the last 25 years: 2007.

Volatility Is Now At Multi-Year Lows

One indicator that has remained consistently positive in our weekly summary table is volatility (Vix). Volatility has remained below 20 since the start of 2013, with the exception of about 5 days. This correlates with strong equity returns.

Weekly Market Summary

The big question facing investors is whether the 10% correction in RUT and NDX will spill over into the large cap indices, SPX and DJIA. 

So far, of course, large caps have not only held up, but made new all-time highs as recently as this week. SPY may only be up 1.5% so far in 2014, but it's still in a rising channel. Below 184 is a break of both this channel as well as critical support over the past 5 months.

Up 75% In 31 Months Without A 10% Drawdown

According to Ned Davis Research:

SPX falls by 10% or more about once every 16 months. It has been 31 months since the last 10% pullback, in September 2011.

So is SPX due for a 10% pullback?


Duration
The dashed line in the chart below shows gains and losses in the SPX of greater that 10% since 1980. The current uninterrupted advance from September 2011 is highlighted in yellow to the far right.