Last we saw a resurgence of strength after about a month of weakness. The breakout came from yet another flag formation. Unless we see a sharp reversal early this week, Bears will have to start over. So bulls have likely bought themselves more time. Chances are we are on the way to the 250 round number, which also happens to be the breakout target. Since this is the second flag in the last 4 months, chances are this will be a final that leads to a 10-15 point pullback.
Statistics for 2 up weeks on the S&P: 57% chance to close green the following week with a profit factor below 1. Not good for Bulls.
We saw a large move down on May 17th which was quickly bought. This low formed yet another supposedly “rare” V bottom. The market has been sucking in short with these quick drop only to quickly squeeze them, forcing the market even higher. We have come to believe this invisible hand under the market is stemming from ETFs with their constant inflows of passive money.
We are currently in an exhaustion phase of a Bull move. While this phase could continue for some time, chances are the upside is limited to around the 250 level in the medium term. Since this is the second flag formation in the last 4 months, chances are this will be a final flag that leads to a 10-15 point pullback. This run also increases the chance of an abrupt pullback with little or no warning. This is because we are entering thin air, with the market very over extend. Also, the lack of a broad rally and weaker momentum further increases the potential.
Also of note, SPY has been above its moving average (the blue line) for 33 periods. This is extremely unusual and we normally leads to a fall below this average in the near future. This is now the longest period above the average since 2003 (about 50 periods), so we are very rare territory.
236-238 is the target area over the next couple of Months.
Long-Term Market Outlook (Updated 4/16/17).
This week: Is fairly quiet but the focus will be on earnings.
Next week will be every active highlighted by the FOMC meting.
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Bullish.
Our short-term models are Bullish.