The S&P broke significant overhead resistance at 1360-1370 in the second week of March. This is extremely bullish for the markets. Momentum is currently overbought, and one would expect a pullback to somewhere near that breakout point (dotted pink line on chart), which coincides nicely with the uptrend (blue line on chart). This should be considered a healthy pullback so long as we do not see a longer termed penetration of 1360. My bet is we won’t penetrate that support in a meaningful way
I maintain that the longer termed pattern for markets are to remain up, but capped at the 12-year resistance points of 1550 on the S&P 500. I am bullish enough to believe that we will reach that target (1500-1550) over the coming months. I view the current correction as a buying opportunity, and I am slowly but surely adding positions from an initial 20% cash position I had been holding (now 10%) into favored stocks and sectors. If and when the S&P reaches the upside target of 1500-1550 as I believe, my stance will likely become significantly more cautious- see the longer termed S&P chart below.
Sentiment – too bullish?
Adding to the potential for a pause and retreat into the breakout point of S&P 1360-1370 area, the good folks at sentimentrader.com were kind enough to lend me a chart summarizing investor risk appetite. I’ve copied Jason Goefert’s comments below, with his permission:
“A composite gauge of brokerage firms’ estimates of investors’ risk appetites is showing one of the lowest levels of risk-aversion in the past 15 years. As the index rises, it means that investors are becoming more and more risk-averse. An index reading of 1.0 would mean that they are the most risk-averse possible.
As the index falls, investors are seeking more and more risk. An index reading of 0 would mean that everyone has gone hog-wild and thrown caution to the wind. The 21-day moving average just dipped below 0.2, one of the more risk-seeking levels we’ve seen since 1997. A shorter-term average, say over the past 5 days, would be at 0.1 and approaching the lowest levels in the past 15 years.
Low index levels, meaning very high risk tolerance, isn’t an automatically contrarian sell signal for equities. But when we hit a low level and reverse back up (the red arrows on the chart), stocks tended to struggle. Conversely, periods of very high risk aversion that then started to reverse (the green arrows) were decent intermediate-term buy signals.”
Keith at Vancouver Moneyshow
I’ll be speaking at the Vancouver MoneyShow next Tuesday March 27th. I’ve prepared an intensive presentation to provide attendees with the tools needed to trade successfully in this market.
3 Comments
In previous blogs you suggested the return of a Bear in the Spring. Given today’s 1500 to 1550 outlook for the S&P are you still calling for the Spring Bear?
Hi Garry
Markets can flatten out after the spring, but not necessarily become bearish (fall is when we often get the negative moves, as you probably know). This year- being an election year, may see markets move higher over the summer – we’ll see. I’m going to play this one by ear-the closer we get to 1550, the more likely I will reduce exposure.