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SPX Update: Will the Market Break This Pattern?


This pattern has repeated since the October 2011 low. Will it continue?

Some nights I study so many charts that I have no idea how I get the update finished at all -- and this is one of those nights. (I know for most people, the sun is up already -- but for me, since I live in Hawai'i, the market opens at 4:30 a.m.) I've been studying chart after chart, because there's something bothering me about this market, but I can't quite put my finger on it. Sometimes when I look at enough charts, I can figure out what my gut is trying to tell me -- and sometimes it's nothing. Maybe my feeling of nagging discomfort is just normal bull market "wall of worry" stuff. I ran out of time tonight, and couldn't quite pin it down, but may have come close with a ratio I watch.

Since this is a currency-driven rally in the form of the QE printing press, I often try to view things through a dollar-lens, so to speak. The chart below is a ratio of the S&P 500 (INDEXSP:.INX) to the US dollar. This is a bit inconclusive at present, but the chart explains the reason for caution: What's bothering me right now is that every rally prior to this (in the QE era, anyway) has begun a deep correction right where we'd normally expect a fourth wave decline and a fifth wave rally. Maybe this rally will break that pattern -- but given the precedent, it seems unwise to simply assume it will.

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The Philadelphia Bank Index (INDEXDJX:BKX) is also warning that a larger turn may be in the works.

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The NYSE Composite (INDEXNYSEGIS:NYA) shows that bulls probably need to hold the black dashed trend line, or risk bigger problems.

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