Summary: SPX, NDX, small caps as well as broad measures like the Russell 3000 - which equals 98% of total US market capitalization - made new all-time highs (ATHs) last week. Even when indices are adjusted for the dominant FAAMNG companies, the remaining 99% of stocks also at new ATHs. The trend is clearly higher, and several new momentum studies suggest that equities are likely to gain more before year-end.
If there is a reason for caution, the risk is mostly short-term (within the next month) and probably not very significant, as explained in this post.
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US equities rose for a 5th month in a row in August, gaining 4-6%. Through the first 8 months of the year, SPX is up 9% while the Nasdaq-100 is up 20% (table from alphatrends.net). Enlarge any chart by clicking on it.
The transport sector also made a new ATH last week, providing a measure of comfort for Dow Theorists. The main laggard remains the Dow Industrials: it is still 2% from its January high but recently broke out of a bullish "cup and handle" pattern (green line) formed over the past 7 months (from IBD Investors; for a trial subscription, please use this link).
Years like 2018, where the SPX is up between 5-10% through August, have a strong propensity to continue higher to the end of the year. In the past 90 years, there have been 13 similar years: 12 of 13 (92%) closed higher at the end of one of the next 4 months and 11 of 13 (85%) added to their YTD gains through year end (from Nautilus Research).
After a strong start to the year, SPX spent the next 7 months trying to regain its prior high. It finally succeeded a week ago Monday, then added to those highs Tuesday and Wednesday.
On weakness, the January high (2870; top blue line) is the first significant support level (it's also WS2 this week). On more significant weakness, the 2790 area (middle blue line) is major support: this area was the February, March and June high and the July/August low.
That 2790 area is also the rising 20-wma that often defines the longer-term trend in SPX (blue line). The 20-wma has a strong tendency to support lows in the index (arrows).
Stocks tend to keep moving higher after a long consolidation period like that experienced over the past half year. In 18 similar instances since 1954, SPX closed higher 3 months later 83% of the time and 12 months later in all instances except one (94%) with a median gain of 12% (from Ryan Detrick).
Likewise, SPX has closed higher 5 months in a row, a sign of strong upward momentum that normally continues over the subsequent months: SPX closed higher at the end of one of the next 4 months in 23 of 25 instances (92%) and a year later in all but one (96%) by a median of 12% (from Steve Deppe).
The propensity for continued strength is also shown in the following table: after not making a new high in over 120 days, SPX does not typically rollover but instead makes a median of 19 additional new highs over next 100 days (i.e., through the first week in January 2019; from OddStats).
The balance of evidence points to continued strength in US equities over the coming months. That is further supported by the following:
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