Monday is Key

Short-term:

So we finally saw the Blow off that we have been expecting for a few weeks. We witnessed the final Bull gasp and then the Bears were set free. Its been a while for them so naturally they had a lot of pent up energy and we took the elevator down. Bears desperately want to see follow through on this move early this week. This could signal a larger and longer selloff than the Bulls expect at this point. IF Monday or Tuesday does not see anther big Bear bar, then Bulls will have a chance at a new high in the next month or so. Ether way we should still see a lower low this week. 270 is the Bear Target.

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.

Medium-Term:

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 February 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. If January closes on near the high, the Monthly bar will look like a textbook blow off top. This should normally lead to a 1-4 month pause or pullback. The 270 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 63 periods. So even with the selloff we are still over bought historically. 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 in the history of the S&P! So we are clearly witnessing a once in a lifetime type of bull move.

Long-Term:

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

The Calendar: 

This Week: will be rather quite but we will start to see rumblings about the debt debate. Keep an eye on the 30 year auction on Thursday.

Next Week: Will be data heavy.

Trend Following Models:

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


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