Here’s all you need to know about the market. Look at the S&P 500.
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I’m just going to do a general video here for everybody because I think it’s important. Look, forget about this black line here on the S&P 500, that’s the 200-day moving average. It’s actually been quite relevant for quite a while, the reason it’s been relevant is, because it hasn’t come anywhere near the price of the S&P 500. What I’m seeing that’s more relevant frankly is this, just a loose support line here, a tighter more precise resistance line here. Now, you’ll notice this forms a converging wedge, otherwise known as a bearish wedge pattern, when you’ve got higher highs and higher lows, but the lines that connect the highs and connect the lows are converging, it kind of looks like a megaphone where the curvy cheerleader is over on this side, I’ll let you draw the rest to the stick figure, and the sounds kind of come out of the end of the megaphone.
What I’m saying is, that typically on this type a megaphone pattern what you see is a downside move, when it comes at the end of a big move, a big uptrend, you tend to see prices trickle out the end and move lower. This is informative though, it is not predictive, and so when you look at a pattern like this you have to understand that a lot of times you’re going to get more information, more useful information out of a broken pattern, a pattern that doesn’t perform as you would expect. That’s really I think what happened here, when we get this kind a breakout here, and now I can even change these things around keep an eye on this level here. This is trading, you can draw patterns however you want, they just have to make sense to you and they have to be profitable. I can change this around and say, you know this is kind of just a trading channel, it’s an uptrend, here’s resistance, here’s support its not a wedge it’s just higher highs and higher lows.
Well when you get a breakout to the upside a lot of times what that signifies is the end of a move to where you get the breakout, and then a pullback, and then ultimately a pull back to the bottom of the channel here; which is connected by these little bottoms here, a weak little bounce and then a move to the downside. Okay we’re getting none of that, we get a move to the upside consolidation for quite a while, and only the liars and the fools know for sure that this is a top versus consolidation. The rest of us are scratching our heads trying not to get all our hair scratched out, trying to figure out what the heck’s going on. So finally just last week we got confirmation, I guess you could say, that this is actually consolidation and the markets moving higher.
Now, how much higher is it going to move? Once again we fall back on the default group of liars and idiots, only they know for sure. I know this, back in, it might have been in June, no it was further back than that, here’s the thing; when the market was clear down here, somewhere down here, this was this year, I remember being on CNBC and Carl Quintanilla asked me how high I thought the market was going to go in 2013 and I picked 1600. I thought that was being pretty aggressive okay and I’m not really too bad at what I do, I’m not the best around, not the worst around, but I thought 1600 was doable, it might have been on the aggressive side. He asked, when do you think that would happen? And I said, “You know what, I’m not a market timer I’m a trend follower.” Okay, so my guess was 1600. Well that pretty much got blown out quite a while ago, so I’m not going to be the guy to tell you how far this moves.
I think that 1800 is going to be seen again by the S&P, I think 1750 is going to be seen again by the S&P, but the way this thing is looking, were talking about broken patterns here, the way this thing is looking this is in a volatility squeeze and this last little tag of the 50-day moving average is actually a really good setup. Forget about these here, none of have these are squeezes, but when you see these setups where a volatility squeeze is close to the 50-day moving average and then you see a continuation to the upside, they kind of tend to move for a while. So as I look at this just as a function of the Roman numeral system I would say that 1850 seems like about the level that traders would look at not as a price target but about at the level that a trader would look at and say, “You know what, if this puppy gets the 1850 I think I’m just going to start selling, I mean that’s got to be it, I’m going to go ahead and sell.”
So what I’m saying is again, not a price target, oh, this is going to 1850, I kind of think it would, but I’m not going to bet my life savings on it. What I’m saying is that you look for the next resistance level at 1850, but you must not disregard the power of the broken pattern. Again, a bearish wedge, an unexpected break out to the upside, a pullback to test that breakout, trickle higher, a pullback to test the 50-day moving average, here it didn’t even fall below the 50, which is what the S&P did do the last three times. So if anything, look the 50 has been trading at this slope, now it’s at a higher slope, the S&P did not fall through as opposed to this here, there’s no reason not to be long this market right now. Seriously there’s no reason, and if you’re worried, well as soon as I buy then that’s going to be the top.
Well if that’s the case then sell, don’t buy, but ask yourself, has that been the case all year long? We’re up at a multi year high right now, so is this the day, 1841.98, that if you’re buying right now you bought the exact top, oh look, we actually went up to 1842, 1842.01, I can keep going forever here but I’m not going to. The bottom line is this; you want to stay long the stuff that’s working. Don’t be a bear in this market; bears are kind of stupid these days though they sound real smart. The ones that are making money are the ones that are just squinting their eyes, looking at the lower left, upper right hand corner, and seeing that the shortest path between those two points should be the money that you’re making.