The S&P 500 rose over 3% last week, led by the consumer discretionary sector which made an upside breakout, and is back near its 2010 high of around 1150. Crowd sentiment is not overly optimistic (as it was in January) and therefore we believe new highs for the major averages are likely.

David Fuller's view It has been a good four weeks and counting for global stock markets. All technical evidence to date suggests that we have seen a normal correction to the cyclical bull market's trend mean represented by rising 200-day moving averages. The only minor negative is that persistent rallies have replaced short-term oversold conditions with short-term overbought readings. If this matters beyond brief pauses, we would see it in the form of downward dynamics and failed upside breaks from trading ranges.

However, a more important factor is likely to be the months spent by most equity indices in ranging consolidations, as they gradually worked their way over to their rising MA mean. In the absence of downward dynamics, perhaps caused by some currently unexpected fright, stock markets remain capable of running on the upside.

Meanwhile, Wall Street has not led - it seldom does - but its all-important leash effect is positive. The USA's rally has been led by small-cap indices, as discussed yesterday, and the S&P (weekly & daily) is approaching its January high. Some temporary resistance man be encountered in this region but once again, a downward dynamic would be required to suggest more than a brief pause. China's (weekly & daily) leash effect is second only to Wall Street and stopped being negative with the upside key day reversal on 3rd February. A break above 3110 would reaffirm a new pattern of higher reaction lows, although considerably more strength is required to make the overall pattern unequivocally bullish once again.