Last week bulls took the entire week to give the top of the range another test. This test may still be in progress, but once again, bulls still cannot go far. We are currently in a 2 week wedge within a month long triangle pattern. This pattern gives both bulls and bears about 50% chance of a breakout. We currently think bears have a slightly better chance. The first bearish target will be right around the September low.
Outflows have begun to slow a bit as the threat of an immediate hike has passed. (Also, on a long term view, not hiking now begins to increase chances of inflation down the line). Now the worry begins to shift to the election over the next few weeks. It is clear the market wants Hillary to win due to the status quo factor. A Trump win will be seen just similar to the Brexit vote by the market.
Also, we are entering another blackout period. This cuts off one of the mains sources of buying for the market. In 2016 this has not mattered as much as in the past due to the large inflow from Europe. However, since these inflows have weakened, the blackout could have a larger effect this time around.
Bulls may be using the buy the pullback card we have been mentioning over the last few weeks. However, we think a big move is imminent once again. The market is now coiling and we could see about a 8-10 point move in the next month or so. We currently think there are better chances that the move may be to the downside. We will look for a possible swing short if the opportunity presents itself.
Long-Term Market Outlook (Updated 9/5/16).
Friday we the Jobs Report, and an army of Fed speakers. So it should be extra volatile.
Trend Following Models:
My long term models are Bullish.
My medium term models are Leaning Bearish.
My short term models are Neutral.