Broadening Breadth?

Mid-week market update: I suggested on the weekend that the animal spirits were back. Indeed, the market may be undergoing a broadening in breadth and leadership. NASDAQ 100 stocks are coming off the boil, and med- and small-cap stocks are showing signs of life. That’s a welcome short-term sign that this rally may have more room to run.

Analysis from Goldman Sachs shows that global equity flows are now at a risk-on extreme, which is indicative of a buying stampede

 

The buying stampede doesn’t look like it’s over just yet. The BoA Bull & Bear Indicator has risen sharply, but readings are still neutral.

 

Deutsche’s estimates of aggregate equity positioning tells a similar story of a recovery off a panic bottom, but readings are in neutral territory.

Putting it all together, I am seeing signs of a momentum-style breadth thrust that has the potential to take stock prices higher. However, investors should be prepared for a tactical pause in the days ahead.

Seasonal analysis from Jeffrey Hirsch of Almanac Trader suggests a bullish tailwinds before the 4th of July and bearish headwinds next week. That calendar is consistent with uncertainty over the “Liberation Day” 90-day negotiation extension which expires July 9. Trump recently threatened Japan with a 30% tariff rate, which is higher than the 24% “Liberation Day” rate, and indicated that he won’t extend the deadline

 

A “rally now and correct later” scenario is consistent with what happens when the S&P 500 undergoing an upper Bollinger Band ride, as it is doing now. In the past, the market has either consolidated or staged minor pullbacks once the upper BB ride is over.