Irrational Market


The market is on yet another extreme Bull move. At this point the market has lost its rationality and extremes are just becoming even more extremes. In fact we have seen some some of the smallest put buying last week suggesting there are almost no shorts left. This is classic blow off behavior. This week we are looking for a new all time high early on. We do have a few indicators that suggest a pullback very soon. However, we need to see some intra-day strength from the Bears before we can see any weakness at this point.

Statistics for 2 up week on the S&P: 58% chance of closing green but with a okay 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, 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. Since we have broken this trend line, it further increases the change a large, abrupt pullback back to this level. While the chances of such a sudden “crash” remain low by definition, they are slowly increasing.

We think a larger pullback in imminent with the Debt Ceiling debate coming up in mid to late January and many of the market catalysts are now priced into the market.

SPY has now risen for 14 months is a row which breaks the previous record, which is another sign of the current climatic market phase. Internals are now at extremes as well, this suggests that we should see a sharp pullback at some point when the blow off completes The 268 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 for the foreseeable future.

Even more evidence of the current climax can be seen with SPY being above its moving average (the blue line) for 60 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 62 periods), so we are very rare territory.


Long-Term Market Outlook (Updated 11/5/17).

The Calendar:

This week: we will see some normal reports along with the Beige Book.

Next week: we will see the PMI, durable goods, and GDP report.

Trend Following Models:

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