Short-term Outlook:  Neutral  From Feb 26, 1107 SPX

Equity Indicators - Updates and Extremes

S&P 500 Up For 9 Straight Days

This is certainly a streaky, momentum market.  So far we've looked at a record drop in the VIX "fear gauge", and the persistent uptrend in the small-cap Russell 2000 index.

Now we have the S&P 500 index up for 9 consecutive trading days.  When occurring near a 52-week high, this is the longest streak since November 2004.

Like we did with the other cases, let's not just assume this is bullish ("if stocks can't go down, then they'll go up") or bearish ("streaks don't last much longer than this") and instead look at history.

The table below looks at all streaks of 9 straight up days since 1928 when the index was within 1% of a 52-week high, and the S&P's performance going forward.

For the most part, the results were mediocre.  This kind of sustained momentum so near a new high didn't tend to lead to gangbusters breakouts...or momentous declines.  Usually, stocks just kind of sat there and didn't do much.

Only one instance (October 1989) led to anything more than a -4% correction at any point during the following month.  The one in August 1929 led to the crash in October of that year, but not before the S&P managed to climb another 4% or so over the next month.  In all, only that one led to more than a -10% drop at the worst point over the next three months; seven of them led to gains of more than +10%.

As for how long the streak can last, out of the 26 occurrences, 7 of them went on to 10 days, 3 went to 11 days, 4 went to 12 days and 1 went to 14 days.

Rydex Beta Chase Index

Rydex traders have finally jumped onto the uptrend, with a couple of our shorter-term indicators there pushing into extreme territory yesterday and today.

One of those is the Beta Chase Index, which looks at how aggressively traders in the Rydex mutual funds are buying into "risky" funds versus "safe" funds.  As of yesterday, they were 5 times more likely to trade a risky fund.

The chart below shows this index since the March bottom, along with how higher-risk, higher-beta stocks (using the Nasdaq 100 as a proxy) performed against the S&P 500.

Each time, we saw the Nasdaq 100 under-perform the S&P over the next 1-4 weeks, as the rush into riskier assets subsided.

What this argues for now, of course, is that the powerhouse tech stocks that have been helping to lead the rally should pause a bit, at least in relation to the overall market, until we see traders less willing to be so aggressive.