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Coolhand's Market Analysis

Are We There Yet?

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The current rally really has a lot of experienced traders wondering just how much higher the stock market can go since the February bottom. It's very hard to predict a top; especially when global markets are being propped up by liquidity. What I can predict is that a top will come eventually.

Buying Gold Companies-spx1-jpg

Here is a 3 year weekly chart of the S&P 500. We can see that the bull market largely hit its peak in the Spring of 2015; almost 1 year ago. Since then, it has cycled up and down 2 times. We are currently at the high part of the cycle now. The colored lines represent envelopes around the 50 day moving average of the S&P 500. The 50 dma is the blue line in the center. Aside from the obvious duration of the current rally, how else might be we anticipate a top? Price on the S&P 500 fell under that upper pink line (this represents 3% above the 50 dma) last Summer and has not been able to get back over it since. Keep in mind, this is a weekly chart and not a daily one. Back in October, the market peaked just shy of that pink line. Last week, price tagged it, but did not close above it. There is a chance that this is a peak.

Buying Gold Companies-nyse-jpg

Same type of chart here, but it's the New York Stock Exchange depicted instead. This exchange is the most representative major index of our stock market and economy. Here, we see that price has closed above its 50 dma for the first time since the Summer of 2015. It appears to be a breakout and weekly momentum is still rising. That may be key. But remember, the S&P 500 has not broken out on the weekly chart, so we can't be sure if this is a fake out or not.

The 6 month cycle for seasonality has favored the bulls since November, but we are now just 2 weeks away from the negative 6 month cycle and it comes after a huge rally off the February low. Sometimes, the market reacts prior to a key cycle. It's possible that after such a rally the bulls begin to reign in their horns early in anticipation of the weaker portion of the seasonal cycle. But that's just a possibility and not actionable. It's a question of risk.

The next FOMC policy statement comes the week after next. These events are sometimes used as a catalyst to move the herd in another direction. But it's going to be interesting, because with the exception of our TSP Talk sentiment survey, which is overly bullish (bearish) most sentiment measures are neutral. That being the case, I am not looking for major downside action even if weakness were to manifest.

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  1. coolhand's Avatar
    Well, futures are down pretty good so far Sunday evening. We need a catalyst that can be used as an excuse to take the market down. I though the FOMC meeting next week might be it, but the Doha production freeze failed to produce an agreement and that could be the excuse to send the market lower. Maybe the FOMC puts in a floor after some selling?

    Market direction sure does seem to revolve around a script. It reminds me of the WWF days in the 80-90's. It's all theater.

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