Even the bulls can’t keep up with their demands. 

The S&P 500 is up 14 of the last 16 days. The S&P 500 has moved 300 points or about 7 percent since Oct. 13.

The market is a juggernaut because of its strong revenues, increased earnings and seasonal strength. 

What are the signs of market exhaustion and when will they end?

What will stop it? It will depend on the person you ask. But there are signs.

The technical limits are reached. On a short-term basis, the S&P 500 is as overbought as it has been since just before the outbreak of Covid. McClellan’s McClellan market Report editor Tom McClellan said that it takes lots of energy for the markets to continue moving like this. The bulls are unable to sustain a string of up and down days. It’s like they run out juice.

McClellan stated that he was watching out for potential divergences to signal an end of the rally. 

1) A continuing rise in markets when CBOE Volatility Index(VIX) begins rising. This indicates traders think the trend will slow down or reverse, and they are buying protection to stop it.

2) Continued market rises, but momentum indicators like the Relative Strength Indicator start to fall. The RSI is a measure of momentum for a period of two weeks. If momentum slows and the market starts to fall, then that’s an indicator that it is dropping.

3) a divergence between the S&P and the Advance/Decline line. When the S&P keeps advancing, but the number of stocks advance starts to decline, it is a sign the rally is relying on fewer leaders, a classic red flag. 

There is one thing certain: it can’t go up. McClellan said that there are decades worth of data on stock market behavior. The market’s maximum upward velocity is at its peak. It is possible to keep moving up but at a slower speed, which can indicate that the market is heading for correction.

Expectations for earnings growth are decreasingIt is. Analysts have not raised earnings estimates as much this year. The relentless market advance can be largely attributed to the fact that earnings estimates continue rising. It has occurred for the three first quarters of this year. However, that momentum now seems to be slowing. In a note to clients, Nick Raich of The Earnings Scout stated that the earnings season was not as strong as in 2Q 2021. He also noted that positive revision momentum for EPS estimates has stalled.    

Fourth-quarter earnings expectations peaked several weeks back, when analysts expected a gain in the region of 22.8%. The current level is 22.0%.

Raich said that the market was pricing in a perfect situation. It believes that supply chain issues will be solved in the next quarter, that inflation won’t be permanent, and that demand will remain strong.

He added, “That may play out but it leaves market with very few room for error.”

Falling Ten-year yieldWhy is the yield curve not flattening when the economy is performing so well? The two-year Treasury yields have been rising due to expectations that the Fed will raise rates next year. However, the yield on the 10-year Treasury has been stable. 

Peter Tchir from Academy Securities’ head of macro strategy, said that if bond yields are low it is not good news for stocks. This is a signal that the bond markets are pricing in lower growth. I am still optimistic about the economy and believe 10 year yields will rise. “If they do not increase, that would be a problem.”

Fed reduces quantitative easing Markets have adapted to the $120 billion per month in additional liquidity from the Federal Reserve’s Quantitative easing Program. Much of this has made its way into stock markets. 

Is there anything more?

McClellan stated, “It’s just like when you stop fertilizing roses.” They don’t grow as much if you stop fertilizing them.” 

McClellan said the role of money — liquidity — in helping prop up the market has been under-appreciated. 

The most important thing investors need to understand is “How much money there is?” “How much money do you want to invest in stocks?” McClellan told me.

“In the past decade, a lot more of this money has made its way to the market.”