Last week we closed down a little over 1%. This puts us down only about 3% from the March 1 high. We are still in a narrow range/falling wedge. After the climatic high in March, both sides are playing chicken to see who will blink first. Bears have made progress, but have pushed some climatic indicators to far in the short term (even with such a small move). Thus, this week, we expect to see a bounce in the first half of the week to the 235 area. However, we still believe Bears hold a slight edge in the Medium Term.
Bears need to break the 231.50 level. This will signal that an extra 2-4% pullback has begun.
Statistics for 2 down weeks in a row: next week historically, has a 56% chance to close in the green.
Since March closed in the red but not near it’s low, an extra 2-4% pullback is a bit less likely. If we do see a pullback, it will likely test the 2017 open around 224-226. This time frame should also coincide with the anticipation of the upcoming French elections and the debt ceiling and tax fight in May. The Pullback however, will almost certainly be bought and the market will attempt to at least retest the highs later in 2017. At that time we will see the next real chance to see a strong Bear trend emerge.
Also of note, SPY has been above its moving average (the blue line) for 20 periods. This is extremely unusual and we normally leads to a fall below this average in the next 5-6 bars or so.
The bottom line is: 228 is the first line that The Bears need to break to be taken seriously.
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. We now are on the second leg of the pullback. It will be key to see how strong the move back up will be. This will tell us whether the low in yields was in
Long-Term Market Outlook (Updated 4/16/17).
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. (3/5/17)
This week will be full of data points with a focus on housing. Also, the first round of the French election will start on Sunday.
Next week we have some more important data points capped of with the GDP report.
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Bearish.
Our short-term models are Bearish.