Gravity is starting to win out here. With such a strong move you have to imagine a model rocket going up in the air. When the engine dies, you have one last pulse up, which was equivalent last Wednesday. Then the rocket then stalls and begins to fall the other way and picks up some momentum before the parachute opens. This is where we are at the moment. We should see at least a couple of the open gaps be filled within the next week and a half. Therefore, the 235 area is our first Bear target.
Bulls have now bought themselves more time. There likely will be a pullback in the short term to alleviate the overbought conditions. That pullback will almost certainly be bought and the market will attempt to at least retest the highs. This will be the next chance to see a stronger Bear emerge. This time frame should also coincide with the anticipation of the upcoming French elections this April. In our opinion, a Le Pen win would be much worse than Brexit for the Market. We think it would signal the final Knell for the Eurozone. We also need to keep an eye on the Dutch elections on March 15.
228 is the first line that The Bears need to break to be taken seriously. As stated above; there is a much better chance atm that bulls will buy this first dip over the next month before a more sustained pullback that we believe will eventually test the 224 level.
Volatility has become very low over the last few weeks. This is signaling things are too complacent. Couple this with very high bullish positions, and Bears could make a large stop run with little warning.
As we have mentioned, long term yields on bonds have begun to act differently than in recent years. This could be an issue if yields keep on rising. As we expected a short squeeze started a few weeks ago fueled by mandatory fund re-balances. Leg one of the squeeze has completed. Look for a second leg coinciding with the coming market pullback. We also now think the end of this Bull market will coincide with the 10year yield around 3.5%.
We are 3 for 3 in favor of the bulls, as far as early statistical barometers. So historically 2017 should be an up year for the SPX.
Long-Term Market Outlook (Updated 1/1/17).
The 2400 target was fulfilled. This was a great area to take some profits off the table, and we should normally see a pullback here.
The Jobs report will be the big market moving event this week.
Next week we have lots a data tops off with a big Fed meeting on Wednesday. The odds of a hike have jump massively in the last week. They are now at 80%.
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Bullish but turning Bearish.
Our short-term models are Bullish but turning Bearish.