Last week we treaded water a bit but Bulls were able to close strong on Friday. This increases Monday’s importance. Another Strong up day on Monday or Tuesday and chances are we will test the all time high. If Bears are able to make another stand chances are we will break down below 240 in the next week or two.
The price action over the last few weeks has been the strongest The Bears have looked in some time. So without another strong push higher, this back and fourth will favor Bears as we look towards the medium term.
Statistics for 1 up week on the S&P: 50% 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. 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 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 will see some action centered around the Yellen testimony. She will also speak on Thursday.
Next week: Is fairly quiet but the focus will be on earnings.
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Neutral
Our short-term models are Neutral.