Climax Phase

Short-Term:

Last week we saw another bounce and yet another new all time high. This is starting to resemble climatic behavior. This week we expect a pullback before mid week, but the Bulls will likely once again try to push higher shortly thereafter.

Statistics for 3 up week on the S&P: 53% chance to close green the following week with a profit factor above 1.

Medium-Term:

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 believe 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.

This move is becoming very climatic. SPY has now risen for 11 months is a row which breaks the previous record. We are now seeing volume indicators spike higher while at the same time momentum is clearly weakening. This type of divergence should lead to a sharp 1-3 month pullback which can start at any time over the next few months. The 240 level would be the first line in the sand.

More evidence of a climax can be seen with SPY being above its moving average (the blue line) for 45 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:

Long-Term Market Outlook (Updated 4/16/17).

Starting in October 2017 the Fed will begin to shed its balance sheet which should prove to be a problem in 2018.

Here is the Full Plan.

The Calendar:

This week: We have the Employment report as well as Yellen speaking (3:15pm*).

 

Next week: We will have the Fed Minutes along with a bunch of Fed speakers.

Trend Following Models:

Our long-term models are Bullish.
Our medium-term models are Bullish but weakening.
Our short-term models are Bullish.

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