Clearing Obstacles

Locked in a wedge yesterday, the S&P 500 looked ready for a break. Wound up for a break out, or possibly a break down, no one was really expecting much in the way of major catalysts that could help this market clear the technical obstacles in the 2050 range.

S&P 500, 3 minute bars, 2014.11.20

S&P 500, 3 minute bars, 2014.11.20

Sometimes, though, we get reminded of why one should always expect the unexpected. After the Chinese and Europeans both pledged additional monetary stimulus, the markets responded predictably: A knee-jerk pop on the open. What followed was a remarkable orderly sell-off into the afternoon that took the S&P right back down into the channel from whence it came.

S&P 500, 3 minute bars, 2014.11.21

S&P 500, 3 minute bars, 2014.11.21

A false breakout, it would seem. Still, no technical damage apparent. As far as I can tell, its an aberration that may have  very little significance beyond setting a new all-time intraday high mark that will become the bulls-eye target for rallies in the coming days and weeks. Only time will tell.

S&P 500, 3 day bars

S&P 500, 3 day bars

Looking at the 3 day chart, we see a continuing rally that off the October lows that shows no signs of ending. This run in now nine candles straight in the green, which is the 2nd longest stretch since the 2009 lows. How long it can continue is anybody’s guess, but we’re clearly not pushing against any major long term technical resistance. Absent a major shock, this run could potentially make the post-crisis record books (12 consecutive green 3 day candles in March and April 2010!), but its got a ways yet to go until it reaches that goal.

 

BNO, 4 hour bars

BNO, 4 hour bars

Beyond the continued tidal wave of global monetary stimulus, there are a number of potential tailwinds for US equities, most notably oil. Falling prices could potentially buoy the economy at a critical time of year, which may provide further fuel for an end of year rally. Brent crude, as can be seen represented by the etf BNO in the chart above, shows few signs of bottoming out after its precipitous fall. Easily one of the most stunning charts for any major commodity in the markets today, BNO is down around 30% from its highs in June. As a major oil consuming market, this bodes very well for continued US economic growth.

 

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