After the best performance in a couple of months, markets are back to an overbought look on several indicators, and that may send diverging messages.  No doubt the price action was very bullish, rising three of five days coming off a very good finish the prior week and breaking significant support as well.  It appears that support at 2040 on the SPX 500 was to be tested and happened when the markets matched it with an oversold reading on May 19 - great timing for a low to be planted.

SPX pic
While trying not to be skeptical, what have we really accomplished?  The chart of the markets this month look very strong and with a day left before May is in the books there is the probability of a higher high on the monthly chart.  Yet we see price is right back at resistance levels from late April, circa 2100 on the SPX 500.  This level met failure back then and was the area of trouble in late October and early December. 

Volume trends have not been robust on this last move higher but we have to default to price action, which we stated early was very strong.  Volume usually picks up at the turns of the market, and we do see a pickup on May 19th and the followthrough day May 24th. 

Sentiment has started to shift has traders/investors become more confident.  Yet, there are bounds and limitations to sentiment that will turn on a dime.  Let's take a look at the VIX, which closed last week at/near the lowest levels of the year.  The other time was off the powerful rally in Feb/Mar and a brief correction ensued.  This is a true danger sign of complacency, and while there is some economic improvement seen all over the place this is not the support market players can rely on to hold up markets.

But there are other concerns out there, too. The CNN Fear/greed index clocked in at an 'extreme greed' reading of 78, not seen since March.  Friday's put/call ratio came in at .51, an incredibly low reading that has often been the precursor to a corrective move down.  The 'wall of worry' is being lowered - which is always a cautionary sign. 

Breadth had been an issue from late April into May but that correction seems to be over as these figures have shown marked improvement.  However, the fly in the ointment may be the lack of breakouts in stocks, specifically new highs.  We saw far more all time highs, 52 week highs and yearly highs the last go around in late April. 

For example, Apple is lower today with the SPX at 2100 than the prior time on April 20.  No doubt some names have surged higher, and perhaps I am being a bit nit-picky here, but I do remember what happened after reaching this level in December 2014 - and so should you!

Finally, a few words on the Fed.  Recently we heard many Fed Governors out in force getting behind a rate hike to be made soon.  The goal was to make the markets 'aware' that a June hike could be discussed.  The committee is poised to bring rates higher and believe they get cover for doing it behind a 'strong' economy. 

It seems their definition of a strong economy is 2% growth, so clearly expectations have been cut down significantly.  Regardless, the markets will have a tough time moving ahead while Fed policy remains hawkish - which could be for years.  While other central bankers continue with their money easing policies we will see the US dollar increase in value as an offset, which will help other economies improve their data.