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US Stock Market Foreshadows Another Rally -- True Story!


What does technical analysis of the S&P 500 tell us?

Over the past couple weeks, investors and traders have been growing increasingly bearish on the US stock market. While I also feel this rally is getting long in the teeth, there is no reason to exit long positions and start shorting.

My followers know I do not pick tops and I do not pick bottoms. I explained this in great detail in my previous report. There are more cons for that tactic and on several different levels (timing, volatility, emotions, lack of experience, addiction) than there are pros.

I will keep things simple, short, and to the point for today and this week on the broad market. Remember, my analysis is 100% technical-based, using price, volume, cycles, volatility, momentum, and sentiment. I try not to let any emotions, gut feelings, or bias flow into my projections. I say "try" because I am only human; at times when the market and emotions are flying high, they still take control of me, but those times are few and far between.

So let's get to the charts shall we!

S&P 500 Trading Daily Chart – SPY Exchange-Traded Fund

The S&P 500 (INDEXSP:.INX) continues to hold up within its rising trend channel, and the recent pullback is bullish. Remember the trend is your friend, and it can continue for very long periods of time, ranging from days to weeks to months

The US Stock Market MUSCLE Indexes

The charts below show and explain my thinking. We need these two indexes to be strong if we want to see another major leg higher in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY, or to at least test the recent highs.

Today the market opened slightly higher and push up in the first 30 minutes with strong volume. Overall, the market looks as though it needs a day for a pause or pullback before taking another run higher.

Small-cap stocks are the ultimate risk-on play, and they generate ridiculous gains in very short periods of time. I focus on these with my trading partner exclusively at where we have been making a killing on trades like Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT), which was up 21% in one day, and InterOil Corporation (NYSE:IOC), which was up 11% in two days.

Bullish Index Price, Volume, and Candles

The S&P 500 has been very predictable during the past couple weeks for both intraday trading during key reversal times in the market when price has pulled back to a support zone, and also for swing trading.

Yesterday was a perfect intraday example: The S&P 500 bottomed out at my 11:30 a.m. ET morning reversal timezone with price trading at support. Price then rallied into the close, posting a 12-point gain on the S&P 500 futures for a simple momentum play.

US Stock Market Mid-Week Conclusion

In short, I still think stocks are the place to be, and I will not get bearish until proven wrong. Once price reverses and the technicals clearly paint a bearish picture with price, volume, momentum, cycles, and sentiment, I start shorting the bounces.

This week is a pivotal one for the stock market so expect increased volatility and possibly lower lows until the countertrend flushes the weak position out before moving higher.

Editor's Note: Chris Vermeulen offers more content at his sites, and Traders Video Playbook.
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No positions in stocks mentioned.

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