But euphoria is a fleeting emotion, that’s why markets top on them. The underlying emotion that causes buying is hard to sustain.
I wouldn’t be as concerned but all of this is happening as the SPX pierces through the long term bear median channel. On Friday it sliced through. That doesn’t mean too much yet. In our pitchfork work we see patterns slice through channel lines all the time. The issue is not that this market had what was needed to get through the door. The question is whether this market has what it takes to stay at these levels. Tests as important as this one is should be a process and not a one day affair. But I will tell you this. Coming into Friday I told my client base on Thursday night the technical situation looked more bullish than bearish and since the trend is your friend it still gets the benefit of the doubt. It will continue to get the benefit of the doubt until we see evidence to the contrary. While history can’t get more euphoric, it is possible for markets to do so. But that doesn’t have to be now.
A turn can come at any time simply because we are now at the resistance target, sentiment has fired off in an extreme fashion and markets are extended. That being said banks and housing still look okay. The bottom line here is as long as banks and housing don’t want to drop, nothing really bad will happen to the market. I first told you that about 15 months ago. At this stage of the game the sector of the market which is most vulnerable is the SOX. What that means is if markets elect to pullback here the higher probability will be for it to be led by technology and perhaps not be confirmed by housing and banking.
The other condition I’ll be watching is whether the SPX will be able to stay above 1325. The longer it stays up there, the greater the chance it has of going higher. If you look at pitchfork methodology as following the path of least resistance, you’ll see that as far as the SPX is concerned, getting away for the bear influence puts in squarely in the upper portion of a bull channel. When we think of these kinds of patterns we find it barely believable that markets can go higher. Let’s not put pressure on ourselves. Let’s pretend we are looking at an hourly chart. If the pattern you are looking were an hourly chart and it pierced through a bear zone you would think that prices can go much higher. Putting it on a weekly or monthly time frame does play with the mind. It doesn’t matter what time frame it is, patterns will do what they will do.
But because sentiment is so complicated, we could see a trading range develop up here as bulls and bears compete in a tug of war with alternating feelings about the geopolitical event. The key event this week is the SOX. It’s most vulnerable to a top and turn in the first half of the week.
This is the final call for our breakout session next Monday at the Traders Expo
I’m going to cover a very precise way to catch important market turns in indices, stocks, Forex and Futures markets. My understanding is the weather is going to be good. It’s President’s Day, markets will be closed and you should have the day off from work. Since you probably won’t be snowed in, I hope to see you there. Since I’ll be on the road, next week will be a shortened column. My regular column will resume when I get back in 2 weeks.
Click chart to enlarge
Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.
Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.