Last week here I clearly laid out a bullish scenario backed by solid reasoning. I summed up my thoughts with this:
In sum, current breadth and the weekly MACD cross suggest further upside next week. Given the market is overbought it may pause or slightly pull-back, but the evidence at hand supports buying a dip or consolidation. With that said, a further large move with strong internals next week could be similar to October 2011 in which the market gave back all the weeks gains plus some before resuming it’s upward momentum.
Intermediate and short term trend: Throughout the rally off the February lows breadth has kept up and has yet to show divergences suggestive of a cycle high. Thus, on an intermediate time frame the market is likely to see higher prices from here. In the short term the market is overbought, which has been a persistent theme of the current thrust higher and confirmation of the markets overall recent strength. Although overbought can stay overbought, given the levels of resistance the market is currently trading at and the the length of time the market has remained overbought, there is likely limited upside before a pull-back.
Breadth: I am only going to show one chart because there has not been much change and I have already demonstrated in previous weeks that breadth has been keeping pace with price. The only difference is that many measures have persistently remained overbought Although that is considered bullish, it is rare and often indicative of a market getting tired and set to pull-back. One example of that is below.
Stocks trading above their 20-day MA: An impressive feat to remain near 90% for several weeks in a row. The 20-day MA of stocks trading above their 20-day MA is currently also near 90%(confusing I know so I am going to try to break it down). First there is the measure of SPX stocks trading above their own 20-day MA (i.e. most stocks in the S&P 500 (roughly 90%) are above their own 20-day MA). Then there is the 20-day MA of this entire breadth measure. The higher it is the more it demonstrates the staying power of remaining in overbought territory (as it’s an average of a 20 day time frame). In the last five years (data from index indicators), the 20-day MA of this measure has only been near 90% two other times. The first was in October 2011, which led to a quick 5% correction the following week. The second was in November 2014, which had limited upside the following 2 weeks, but a bit over 4% downside over the next 20 days. Given there is only two examples, it’s not a study to trade off of in isolation; however, I find it prudent to acknowledge. 
SPY Open Interest: Currently, the high calls at 206 confirm the idea that prices are set for a pull-back or at the least a consolidation. That level also coincides with possible trendline resistance and overhead supply from 2015 (shown below). 
Thus, should prices trade at or above 206, the risk/reward favors downside from there. With that said, if price never gets over 205 next week and a pullback begins at the start to next week, short term traders may want to find a good entry point to short for a first target near 200/201. Other potential targets depending on the depth of the pull-back are 198 and 195/196. For dip buyers, look for support to hold at any one of of those targets above to get long. If price remains above 205 then next week may result in the tightest weekly range seen all year.
In sum, based on the length of time the market has remained overbought, the technical resistance above and the open interest, next week favors limited upside versus potential downside of over 2%. A shortable pull-back into support the first half of the week would be a good set-up to buy toward the end of the week or early next week. Note that there is only four trading days next week as markets are closed for Good Friday.
*Given that next week is not as clear cut as last weeks “buy a slight dip or consolidation for higher prices,” it is difficult to map out next week. For those looking for more guidance with intra-day analysis, trade set-ups and real time trade alerts consider subscribing. Members receive two thorough posts over the weekend along with the intra-day analysis and trade alerts throughout the week. For a sample of last weeks weekend posts see Open Interest for Expiration 3/18/16 and Set-ups and Game plan for 3/14/16 which I have unlocked.
Time for Some Bear Love
Last week here I clearly laid out a bullish scenario backed by solid reasoning. I summed up my thoughts with this:
In sum, current breadth and the weekly MACD cross suggest further upside next week. Given the market is overbought it may pause or slightly pull-back, but the evidence at hand supports buying a dip or consolidation. With that said, a further large move with strong internals next week could be similar to October 2011 in which the market gave back all the weeks gains plus some before resuming it’s upward momentum.
Intermediate and short term trend: Throughout the rally off the February lows breadth has kept up and has yet to show divergences suggestive of a cycle high. Thus, on an intermediate time frame the market is likely to see higher prices from here. In the short term the market is overbought, which has been a persistent theme of the current thrust higher and confirmation of the markets overall recent strength. Although overbought can stay overbought, given the levels of resistance the market is currently trading at and the the length of time the market has remained overbought, there is likely limited upside before a pull-back.
Breadth: I am only going to show one chart because there has not been much change and I have already demonstrated in previous weeks that breadth has been keeping pace with price. The only difference is that many measures have persistently remained overbought Although that is considered bullish, it is rare and often indicative of a market getting tired and set to pull-back. One example of that is below.
Stocks trading above their 20-day MA: An impressive feat to remain near 90% for several weeks in a row. The 20-day MA of stocks trading above their 20-day MA is currently also near 90%(confusing I know so I am going to try to break it down). First there is the measure of SPX stocks trading above their own 20-day MA (i.e. most stocks in the S&P 500 (roughly 90%) are above their own 20-day MA). Then there is the 20-day MA of this entire breadth measure. The higher it is the more it demonstrates the staying power of remaining in overbought territory (as it’s an average of a 20 day time frame). In the last five years (data from index indicators), the 20-day MA of this measure has only been near 90% two other times. The first was in October 2011, which led to a quick 5% correction the following week. The second was in November 2014, which had limited upside the following 2 weeks, but a bit over 4% downside over the next 20 days. Given there is only two examples, it’s not a study to trade off of in isolation; however, I find it prudent to acknowledge.
SPY Open Interest: Currently, the high calls at 206 confirm the idea that prices are set for a pull-back or at the least a consolidation. That level also coincides with possible trendline resistance and overhead supply from 2015 (shown below).
Thus, should prices trade at or above 206, the risk/reward favors downside from there. With that said, if price never gets over 205 next week and a pullback begins at the start to next week, short term traders may want to find a good entry point to short for a first target near 200/201. Other potential targets depending on the depth of the pull-back are 198 and 195/196. For dip buyers, look for support to hold at any one of of those targets above to get long. If price remains above 205 then next week may result in the tightest weekly range seen all year.
In sum, based on the length of time the market has remained overbought, the technical resistance above and the open interest, next week favors limited upside versus potential downside of over 2%. A shortable pull-back into support the first half of the week would be a good set-up to buy toward the end of the week or early next week. Note that there is only four trading days next week as markets are closed for Good Friday.
*Given that next week is not as clear cut as last weeks “buy a slight dip or consolidation for higher prices,” it is difficult to map out next week. For those looking for more guidance with intra-day analysis, trade set-ups and real time trade alerts consider subscribing. Members receive two thorough posts over the weekend along with the intra-day analysis and trade alerts throughout the week. For a sample of last weeks weekend posts see Open Interest for Expiration 3/18/16 and Set-ups and Game plan for 3/14/16 which I have unlocked.
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