Whenever I speak to market participants about Potomac, I always emphasize the composite models—and the multiple systems that power them. From there, I will explain that our models are designed to answer three key questions:
- What is the trend of the market?
- Is the trend healthy, as measured by breadth?
- Is the trend confirmed by intermarket themes?
The title of this week’s note answers those questions—based entirely on market data.
S&P 500
The S&P 500 reached another new high last week before closing essentially unchanged, near the same level where it opened on Monday. It’s hard to argue that new highs are bearish—especially when those highs are backed by momentum.
I added the 3-week RSI to the chart to highlight that recent price highs have coincided with higher RSI highs (a clear momentum confirmation). Contrast this with the December and February highs, which were marked by lower RSI peaks—just before the market collapsed into the April lows.
Source: Optuma
NYSE Advance/Decline Line
Not only did the S&P 500 hit a new high last week, but the NYSE Advance/Decline Line did as well. In a healthy bull market, we expect to see more stocks rising than falling—and that’s exactly what’s happening.
In fact, the one-year stochastic of the A/D line is solidly above 80%, echoing the strength we saw for much of 2024.
Source: Optuma
Large Growth vs. Large Value
It’s not just about the number of stocks going up—leadership is in the right place. Large Growth stocks—often the heavyweights that dominate the index—are performing well. When these names are lagging, the broader market tends to stall (see 2022 and early 2025).
The Growth vs. Value ratio is back near the highs. The generals are leading, and the troops are following.
Source: Optuma
Dow Jones Transportation Average
While the broad market was flat last week, the Dow Jones Transportation Average continues to improve. This key intermarket indicator was up on the week and remains above its 27-week moving average—another important confirmation.
Source: Optuma
Final Thoughts
By our discipline at Potomac, it’s hard to make anything but a bullish case for U.S. equities right now:
1. The trend is up.
2. The trend is healthy.
3. The trend is confirmed by intermarket signals.
Lastly, I must address an ugly rumor from these pages last week: Yes, I was in Italy. Yes, I may have been enjoying the view. But no, I would not drink an Aperol Spritz—a cocktail now mangled beyond recognition by social media.
I am, proudly, a Campari person—preferably in a Negroni, occasionally with soda water, and on rare occasions… yes, as a spritz.
Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.
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