Last week went exactly as we planned. We saw a final push higher on Monday, followed by a breakdown down on Thursday. We also hit our 240 bearish target. This week should be a lower volume holiday week. It should be especially slow on Monday where the market has been up 22 out of 27 years.
The price action over the last few weeks however, have been the strongest The Bears have looked in some time. So without another strong push higher, this back and fourth will favor The Bears as we look towards the medium term.
Statistics for 1 down week on the S&P: next week historically, has a 59% chance to close in the green, with a decent profit factor.
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. 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.
Another group to check out are Semiconductors. They normally lead the NASDAQ and are way off the all time high from a few weeks ago:
Also of note, SPY has been above its moving average (the blue line) for 32 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.
235-237 is the target area over the next couple of Months.
Long-Term Market Outlook (Updated 4/16/17).
This week we have the 4th of July Holiday on Tuesday, the Fed minutes on Wednesday, and the Employment numbers on Friday.
Next week we will see some action centered around the yellen testimony.
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Bullish but weakening.
Our short-term models are Neutral.