Monthly Archives: February 2017

Higher And Higher

2017 has so far been the year of the Bull. Markets have been going up steadily with the Dow logging 12 straight record closes, and the major indices generally matching that performance. All major trends are and remain up.

That said, the markets are in danger of overheating, and a pullback, while not necessarily imminent, is overdue. The S&P 500 now finds itself snugly at the top of near term and medium term rising ranges, clearly evident on the 30 minute chart below.

S&P 500, 30 minute bars

The light green channel highlights the extent of the rally since the Brexit lows of June 2016, and this channel has dominated the near term market outlook especially since the US election in November. In all probability, the green┬áchannel will continue to act as a rough guide to the market’s trajectory for the duration of the bullish season, which typically ends in May/June.

S&P 500, daily bars

The daily chart provides additional clarity on the strength of the S&P 500 recently. Note though how overbought the index is in the near term. At these levels, the likelihood of a pullback grows dramatically. Its tough to buy here; more favorable opportunities should present themselves presently. A move back down to the 2310 level or below would represent an excellent potential point of entry.

S&P 500, weekly bars

That said, for those with a longer term outlook, the undeniable strength of this market presents opportunities even at these levels. Longer term, the market appears set to move substantially higher, barring the risk of exogenous shocks and major adverse events. The weekly chart above and monthly chart below put the recent rally, and the bull market since March 2009, into more context. As is evident on these long term charts, we remain in the middle of the secular rising range dating back to the 1950s.

S&P 500, monthly bars

While the long term picture is bullish, remember that we have near term overbought conditions predominating in all the major indices. While the outlook remains bullish, we remain optimistic that better entry points should present themselves in the relatively near term.

Good luck out there.

 

Running Hot

Since the election, the US markets have seen considerable appreciation. The S&P 500 in particular has been running hot, advancing more than 200 points between early November and January 26. The rally has attenuated somewhat since the December 13 peak, decelerating notably from the rapid pace of advance immediately after the US election. The post-inauguration bump, while bring the markets to new all time highs, has brought little follow through.

S&P 500, 30 minute bars

On the 30 minute chart, we can see deceleration clearly, as the channel originating Dec 13 shows. Last weeks trade saw a definitive breakdown out of the post-election uptrend channel, confirming the slowdown. The price action to date is indicative of a broad arching top.

S&P 500, daily bars

On the daily chart, we can put the recent price action into more context. While the S&P remains withing the broader upward channel defined by the orange lines, it is sluggishly lingering toward the top of that range. While there are numerous support zones below between the market and the lower orange channel boundary, there is plenty of room for the market to correct before heading higher. While a bullish medium term outlook is favored, the likelihood of mild pullback in the next few weeks to a month has increased over the last week.