Last week we saw the pullback we were expecting. This has now lead to a tight trading range. Bulls do have slight edge and still might make an attempt at the all time high, but if they do not act quickly, The Bears will try to test and break the 243 low.
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 250-255 level in the medium term. We have seen yet another Bear Flag Breakout. The pullbacks, however, in the flags keep getting more aggressive. So Bears are slowly getting stronger.
A catalyst for an abrupt pullback may very well be the upcoming debt ceiling debate. The 6 month, 3 month Treasury spread recently turned negative so the market may be starting to pay attention. We also think the recent weakness in the dollar is foretelling a epic debt battle. One other issue we need to keep an eye on is the tension in the Koren Peninsula. Any sort of mistake there could lead to an extreme result.
Also of note, SPY has now been above its moving average (the blue line) for 42 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.
Long-Term Market Outlook (Updated 4/16/17).
This week is still fairly slow on economic news front.
Next Week: we will make up for the last few week with the FOMC. Currently there is a 99% chance that rates will remain unchanged.
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Bullish.
Our short-term models are Bullish but weakening.