Last week here, I put forth another case for the bulls after already being a bull for three straight weeks. That of course worked out very well.
Last week I also made it very clear here and several times on twitter, that a weekly MACD cross has resulted in a higher close the following week 10 out of the last 10 times. After last week we can now make that stat 11 out of 11. So now that I have recommended riding this bull from late September all the way through to last week, what’s next? I believe the intermediate term environment still favors the bulls, but that next week is likely to see a pullback given that price just hit the most traded price level by volume for all of 2015. 
I have been posting similarities to 2011 for a few weeks now and thus far it has served very well. If that analog were to continue then next week would be the start of a move back down to the 1930 – 1950 level over the course of November. As you can see below, in 2011, SPX had a meaningful pull back to make a higher low from the October bottom. Although that scenario is indeed plausible, it is not a prediction I am willing to make without more evidence. As of now, I do not think that over half of October’s rally will be given back as it was in 2011; however, the price action next week can change my mind. 
Some things to look for if the market pullbacks next week to help determine if a 2011-like scenario is becoming more probable:
- Does the market make a higher low on a weekly closing basis?
- Does SPX close above its weekly 50-day moving average?
- Do any days next week show external distribution (volume)?
- Do any days next week show internal distribution (breadth)?
SPX 20-day highs: Currently this has not made a higher high, which is a bit concerning and something to carry forward as a potential caution flag. Given the current bullish trend, if this should get to oversold levels next week, it would be a good signal to get long. Should a bounce from oversold levels not bring new 20-day highs with it, that would be further warning. 
SPX 20-day lows: Thus far this is not showing any warning signs, but an uptick in 20-day lows would be something to take notice of as it often leads to more weakness ahead.
I’m sure by now you have become aware that the current rally is not equal and the large cap names are doing all the heavy lifting. That makes sense given last months fund flows. From Convergex, emphasis mine:
In the equity fund classification, domestic U.S.-only funds pulled in $8.5 billion this month, or 56% of all stock fund inflows. Europe-focused equity funds received $2.1 billion (25%), and Asia-Pacific funds $1.7 billion (just shy of 20%). Money flows to U.S. equities are skewing large cap ($5.0 billion of the $8.5 billion, or 59%) and modestly towards “Value” ($1.5 billion) over “Growth” ($203 million).
I don’t know how long the rally can contain itself without broader participation; but I’m also not going to fight a bullish trend. Perhaps this resolves into further stock participation and further rallying or perhaps it resolves in another correction. Frank Zorrilla discusses that well here.
SPY open interest and levels of significance: The last two weeks price has been able to get and stay above its highest strike calls. When that happens, I see it as a sign of extreme strength (i.e. a strong bid under the market and very few sellers). Next week there isn’t much helpful information because currently the only high level strike is all the way at 200. Of course it’s possible that price drops all the way down to that level making the strike relevant, however, I currently find that scenario unlikely. 
Technical levels of support/resistance: Without any helpful information from the open interest, relaying solely on technicals and overall breadth throughout the week will be my main focus.
Opening below Friday’s close (207.93): Levels of support include 206, 205.50, and then between 203-204. I realize I am providing several areas that are fairly close together as support, but I can’t change that those are in fact support areas. How do you know which ones to buy the dip at (if even at all)? You have to watch breadth (up-down volume; advance-decline) TICKS, VIX, and individual sectors for clues (*if you are struggling with that see below).
Opening above Friday’s close: Assuming price remains above 208, levels of resistance include 209.44, and then roughly every level 210, 211, 212 and all time highs. How can there be so many relevant levels above? Because all those levels were resistance, support, resistance etc from February to July of this year. That is also why I am leaning more toward a likely pull-back than a continuation higher. Those upside levels will likely be much harder to break without more time and some consolidation of October gains. If I had to guess, I would say there will be a couple weeks to a month of struggle before those prices are breached and then when they are, it will be done in one swift move.
Final notes: Although I am biased toward a minor pullback ensuing next week I am open to the possibility that it won’t take place. What would change my mind is a further rally above Friday’s high with internal and/or external accumulation signs.
*If you are curious as to how we are positioned for next week consider joining us. Premium members get intra-day analysis and guidance on the overall market as well as real time trade alerts (entries and exists – not just set-ups) for ETF’s and momentum stocks. Plus they get some sass and we have been killing it!
Will the Bears Make Their Move in November?
Last week here, I put forth another case for the bulls after already being a bull for three straight weeks. That of course worked out very well.
Last week I also made it very clear here and several times on twitter, that a weekly MACD cross has resulted in a higher close the following week 10 out of the last 10 times. After last week we can now make that stat 11 out of 11. So now that I have recommended riding this bull from late September all the way through to last week, what’s next? I believe the intermediate term environment still favors the bulls, but that next week is likely to see a pullback given that price just hit the most traded price level by volume for all of 2015.
I have been posting similarities to 2011 for a few weeks now and thus far it has served very well. If that analog were to continue then next week would be the start of a move back down to the 1930 – 1950 level over the course of November. As you can see below, in 2011, SPX had a meaningful pull back to make a higher low from the October bottom. Although that scenario is indeed plausible, it is not a prediction I am willing to make without more evidence. As of now, I do not think that over half of October’s rally will be given back as it was in 2011; however, the price action next week can change my mind.
Some things to look for if the market pullbacks next week to help determine if a 2011-like scenario is becoming more probable:
SPX 20-day highs: Currently this has not made a higher high, which is a bit concerning and something to carry forward as a potential caution flag. Given the current bullish trend, if this should get to oversold levels next week, it would be a good signal to get long. Should a bounce from oversold levels not bring new 20-day highs with it, that would be further warning.
SPX 20-day lows: Thus far this is not showing any warning signs, but an uptick in 20-day lows would be something to take notice of as it often leads to more weakness ahead.
I’m sure by now you have become aware that the current rally is not equal and the large cap names are doing all the heavy lifting. That makes sense given last months fund flows. From Convergex, emphasis mine:
I don’t know how long the rally can contain itself without broader participation; but I’m also not going to fight a bullish trend. Perhaps this resolves into further stock participation and further rallying or perhaps it resolves in another correction. Frank Zorrilla discusses that well here.
SPY open interest and levels of significance: The last two weeks price has been able to get and stay above its highest strike calls. When that happens, I see it as a sign of extreme strength (i.e. a strong bid under the market and very few sellers). Next week there isn’t much helpful information because currently the only high level strike is all the way at 200. Of course it’s possible that price drops all the way down to that level making the strike relevant, however, I currently find that scenario unlikely.
Technical levels of support/resistance: Without any helpful information from the open interest, relaying solely on technicals and overall breadth throughout the week will be my main focus.
Opening below Friday’s close (207.93): Levels of support include 206, 205.50, and then between 203-204. I realize I am providing several areas that are fairly close together as support, but I can’t change that those are in fact support areas. How do you know which ones to buy the dip at (if even at all)? You have to watch breadth (up-down volume; advance-decline) TICKS, VIX, and individual sectors for clues (*if you are struggling with that see below).
Opening above Friday’s close: Assuming price remains above 208, levels of resistance include 209.44, and then roughly every level 210, 211, 212 and all time highs. How can there be so many relevant levels above? Because all those levels were resistance, support, resistance etc from February to July of this year. That is also why I am leaning more toward a likely pull-back than a continuation higher. Those upside levels will likely be much harder to break without more time and some consolidation of October gains. If I had to guess, I would say there will be a couple weeks to a month of struggle before those prices are breached and then when they are, it will be done in one swift move.
Final notes: Although I am biased toward a minor pullback ensuing next week I am open to the possibility that it won’t take place. What would change my mind is a further rally above Friday’s high with internal and/or external accumulation signs.
*If you are curious as to how we are positioned for next week consider joining us. Premium members get intra-day analysis and guidance on the overall market as well as real time trade alerts (entries and exists – not just set-ups) for ETF’s and momentum stocks. Plus they get some sass and we have been killing it!
Share this: