A Runaway Hoofy
His rampage has investors falling all over themselves to fall in love with equities.
Livin' it up when I'm goin' down
Love in an elevator
Lovin' it up till I hit the ground
If the move up from last July's low was an escalator, the ride up from the recent March low is an elevator.
A look at the weekly chart of the S&P shows that although the move up from last July to February was to be sure persistent, the Weekly Swing Chart was allowed to inhale and exhale. In other words, the Weekly Swing Chart turned down on trade below a prior week's low frequently.
Each arrow represents a turndown in the Weekly Swing Chart on the S&P. Note, there were seven turndowns leading into the February break (A). Since the March low the Weekly Chart has not turned down once, advancing vertically for 6 weeks.
It is important to observe that when the Weekly Swing Chart did turn down it did so marginally and that the pullbacks traced out no more than two consecutive lower lows. This is the Sign of the Bull. A Runaway Hoofy, if you will.
But, a funny thing happened on the way to the Forum after the break from the February high - Hoofy looked the Matador in the eye and saw red. He's been doing his best De Niro impersonation throughout April. A Raging Hoofy has taken no prisoners making April truly the cruelest month for Boo.
His rampage has investors falling all over themselves to fall in love with equities. Although, Boo feels there is nothing fair or equitable about a one-sided market: A seven-day dive into March fifth will not feed his cubs.
A look at the weekly chart of the S&P since the March low shows that the Weekly Swing Chart has been straight up – without one turndown – without one week violating a prior week's low. Hoofy is hyperventilating. It's love in an elevator.
(A) On March 21st the S&P scored a "Follow-Through Day"
(B) On March 30th the S&P Pivoted off a test of its 20 DMA
(C) Since April 12th the S&P has gone vertical
(D) Note a Rising Triangle shows support at approximately last week's lows near 1473/1474.
In my experience based on a study of the S&P from its inception, many times a turn occurs in the seventh time frame – (just as the February 2007 reversal occurred on the seventh month up from the July 2006 low.) This week will be the seventh week up on the S&P.
That by no means guarantees a turning point of some sort is at hand. Because the exuberant, irrational phase is underway it's hard to tell where a bottle rocket will pause, but a weekly turndown is due. That would be the natural expectation according to my tools – tools that have done a good job in the past at identifying turning points. And, without some way of measuring risk, you cannot manage risk.
It is entirely possible of course that the market will simply accelerate on the seventh week rather than pullback. Such was the case in 1987 when the market staged a Climax Run, which lasted thirteen to fourteen weeks. However that run came after a more meaningful consolidation in April and May of that year prior to the run up into the end of August.
The Weekly Swing Chart will turndown this week on trade below last week's low of 1473.75. That's substantially below where the S&P ended the week at 1494.05. Consequently, if a turning point is at hand the index may go sideways for a week and trade inside last week's range and turndown on trade below this week's range the subsequent week. Either way any turndown on the weekly chart will enable us to measure and take the temperature of the market.
Stocks aren't so much climbing a wall of worry this week as they are making love to investors in an elevator in a place called Parabolic Palace. Examples of names that checked into the penthouse this week are Cummins (CMI), Amazon (AMZN), Black & Decker (BDK), F5 Networks (FFIV), Varian Semiconductor Equipment Associates (VSEA), Baidu.com (BIDU) and of course Apple (AAPL), to name a few.
The Wall Street concierges do a great job of managing earnings and expectations - it's not just that earnings are exceeding lowered expectations, it's a question of whether the quality of these earnings as to currency translation and corporate buybacks will stand up to the light of scrutiny when the sun comes up. Will Hoofy still be in love in the morning or decide it was a coyote date? Watch out for falling limbs on trade below 1473.75 S&P that doesn't stick. The floors go by just as quickly on the way down as they do on the way up.
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