Last week went as planed once again. We saw a pullback early on that was bought into the end of the week. We are now up 8 weeks in a row and as we mentioned last week, a pullback should be around the corner. The rally over the last 2 weeks has been lead by mega caps while the boarder market is weakening. We are also noticing that stocks making their 52 week low has been creeping higher. Normally, this will lead to a nice pullback, as less and less stocks are participating in the rally. 256 will be the first bear target.
Statistics for 8 up week on the S&P: 25% chance to close green the following week with a profit factor around .11 so pretty ugly for Bulls but the draw downs were small.
As we mentioned last week, 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 242 level would be the first line in the sand. However, Bulls will likely buy the first 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 50 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 11/5/17).
This week: will be fairly quiet as far as data. We need to keep an eye on the turmoil going on in Saudi Arabia.
Next week: we have some good data points to look forward too.
Trend Following Models:
Our long-term models are Bullish.
Our medium-term models are Bullish but weakening.
Our short-term models are Bullish.