I am heading to southern New Jersey to attend my niece's First Holy Communion (go Lindsay!) this weekend so this will be brief.
As you know, I don't believe every tick in the market and day of trading is a make or break for the market, so I am very hesitant to announce the market is at a "key level." That said, I do believe for a number of reasons that I have outlined this week, an important area of resistance is upon us.
• The market (as defined by S&P 500) is at the upper end of the near-term trading range
• The market is bumping up against its intermediate-term downtrend line.
• The market is currently reaching into intermediate-term overbought levels that have been associated with downtrend peaks over the past two years.
SPX is in a battle at upper end of trading range
S&P 500 is bumping up against its intermediate-term downtrend line
SPX has become overbought on weekly chart
Those charts appear to paint a rather negative picture right? The answer is yes, but the landscape can change pretty quickly.
I spent some time yesterday afternoon with someone who has forgotten more that I know about the markets. I mention that because the only way for me to get better at what I do is to remain teachable. This fund manager (and friend) closed the meeting by handing me a sheet of paper outlining what market cycles look like - every time -- and then followed it up with a look at the point & figure charts of the various market indices and their respective ETFs. He didn't give opinion, but just showed them too me. It capped a very educational meeting.
I concluded the market is at the upper end of a trading range that must be watched for failure or breakout. It's that close a call. If one had a negative view, this would be the area to act on it, as long as you're willing to admit a mistake on a move above both trendline and price resistance. I know that once the range is broken on price (945ish), the trading range becomes a bottom.
The bottom line is that traders and investors should use the current range to their advantage until it no longer is a range and becomes either a bottom or a top. The good news is the range is so clear that a move out of it will be very identifiable.
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