In our last update we nailed the 256 target and then once again the Bulls took back control as expected. Last week, with the holiday volume, Bulls once again were able to breakout and push to a new all time high. This now sets up an interesting week. We have a 262 breakout target but at the same time, as of now the breakout appears weak and momentum is once again weakening.
November comes to a close on Thursday. If we close higher once again it will be the 12 consecutive higher monthly close. If the Bears can close below 257 it may set up a 3-5% pullback in the next month or so.
Statistics for 1 up week on the S&P: 50% chance of closing green but with a bad profit factor.
We are now in the final climax phase of the long 8 year bull market. This will be the exhaustion phase of the Bull move. While this phase could continue for some time, chances are the upside is limited to around the 260-270 level in the medium term, but with a such a climax rationally goes out the window. Also, of note is that there is a long standing trend line dating back to the 2009 low above at this same 260-270 level. A break of this line will further increase the change a large, abrupt pullback. While the chances of such a sudden “crash” remain low by definition, they are slowly increasing.
SPY has now risen for 11 months is a row which breaks the previous record, which is another sign of the current climatic market phase. We are now seeing volume indicators spike higher while at the same time momentum is slowly 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 250 level would be the first line in the sand. However, Bulls will likely buy the first larger pullback so Bulls continue to be in full control.
Even more evidence of the current climax can be seen with SPY being above its moving average (the blue line) for 53 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 on the SPX since 1995 (about 63 periods), so we are very rare territory.
Long-Term Market Outlook (Updated 11/5/17).
This week: This week we have a good amount of economic data, topped off with Yellen speaking on Wednesday.
Next week: will be highlighted by the employment report
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Bullish.
Our short-term models are Bullish.