Is this market rally coming to a end?
The S&P 500 has had a monster rally from the March lows there is no denying that, but as everyone knows the market can not go up in a straight line forever. From the March lows the Weekly charts have kicked in pushing this move from oversold to overbought conditions on a daily chart with no real pullbacks. The fact that the market didn't have a healthy pullback to stabilize this move up then push higher makes us concerned with this move.
Is this the start of a new bull market or is this just a bear market rally? That is the million dollar question that everyone is arguing about and the more they argue the more people get stuck in thinking their thoughts are 100% the sure thing. This can bea dangerous mindset when it comes to the markets, nothing is for sure EVER!
The more everyone argues the fact we are in a new bull market the more the market can change meaning; the more everyone has a set in stone outcome of this move the more they are willing to hold the losing trades longer and not acknoledge significint changes that are happening on a daily basis.
Even if the March low is the bottom would buying 35% up from that low be a good entry spot? We dont think so, and looking at the S&P chart we are starting to get confirmations to that theory. Looking at the daily chart we broke down to the lows (the March low) from there we rallied straight up to the January 8th high (Resistance) and in the process of doing that all we have completed is a trendline low re-test which is still bearish. This pattern happens on a 1 min chart all the way up to a monthly chart, but the outcome is usually the same and that outcome is there is massive resistance at this level. This is a normal pattern that needs to be aknoledged at this time.
Yes, the March low could indeed hold and the market rallies up higher, but the market needs to pullback and HOLD then break the 930.00 high with new fresh buyers within that move NOT traders or investors chasing the move to the prior highs (which is resistance). Pullbacks that hold are healthy for the market and we have not have that yet. This could be a bigger move within a bigger move, but until we have a pullback and hold we feel as though buying here is chasing the price which is never a prudent thing to do.
We cant look into the future and know for sure the market will hold on the pullback we can only act upon it if it happens. If the S&P's take out the last swing low of 875.00 we would anticipate more to the downside with the lower target for the pullback around 800.00.
A easy way to play this would be to buy Puts on the DIA, or buy the inverse ETF's such as SRS, SDS and SKF.
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