Let’s get right down to it: A quick look at some indicators that may offer guidance to the markets direction.
My notations on the chart below should be fairly self-explanatory. In a nutshell: It might be expected that we see a continuation of the bounce we saw Monday and Tuesday of this week, perhaps taking us back to the double bottom neckline around 1990 for the S&P500. Evidence of hooking RSI and Stochastics, along with a spinning top candle on Monday add to that potential. But that level may not hold out for too long.
Mid termed technicals
It looks like the market will find a reason to fall after a near termed uptick – per the short termed indicators noted above. In a nutshell:
- Moneyflow, from both a cumulative perspective (bottom pane) and its momentum (top pane) of the chart above is poor.
- MACD is just plain ugly. Note that the last correction in the summer where we saw a spinning top and momentum setup – MACD was diverging positively. NOT THIS TIME!!!
- Volume has declined on recent peaks, risen on recent rallies. That means selling pressure outweighs buying pressure.
- Breadth looks terrible, except from an oversold perspective. Here’s the blog with my breadth charts.
- Sentiment has actually turned to become a bit more bullish since my update on the blog noted above. Smart money is buying (65% bullish) , dumb money is selling (38% bullish). This is up from dead-even 50% on both sides a week ago. Chart below, courtesy of www.sentimentrader.com. However, smart money sometimes catches over-reactions for the trade – which can be a short termed signal – not so good for the longer term.
- Trailing PE ratio on the S&P500 (OK—not a technical indicator, but what the heck…) is at the top of its range. A correction is probably warranted. Chart courtesy http://www.multpl.com/
Long termed technicals
It is clear that the US markets have broken into a secular bull phase – given the end of the secular sideways period ending in August 2103. In a nutshell:
- The chart above (courtesy www.freestockcharts.com) suggests that, were secular trend patterns to continue, we should be in a bull market for at least 2020. Bull markets have ranged from 7-17 years in length since 1880. The 2013 breakout suggests a minimum bull leg out to 2020. I have a longer chart in my book Sideways that will illustrate the secular bull/bear patterns back to 1880.
- Rising rates are actually good for the markets. Here is a blog I wrote on that topic.
It’s clear that US markets are in a corrective wave within that secular bull. That corrective wave started late 2014 and has shown sideways movements since. The bull market, in my opinion, will break out again –but not without a catalyst. That catalyst hasn’t appeared yet. So we should assume more sideways (big up / swings) patterns until proven otherwise.
My outlook remains: Near termed bull (days) rally, mid-termed bear (correction), long termed bull (secular bull market).
As such, I expect to sell in the coming days on a rally (assuming there is one….) then to buy back in at a later date and price point that has yet to be determined.