Short-term Market Outlook
Presently, I remain in favor of the view that the trend has changed at intermediate degree, and that the market has begun a new long-term downtrend. There are a couple things which could cause me to doubt that view:
1. Sustained trade and closes north of 1370-1375 SPX.
2. A new QE program.
The chart below outlines some of the immediate challenges faced by the S&P 500 (SPX).
Keep in mind that if this is wave (ii) (in other words, if the market doesn't reverse back down pretty much immediately), then its job is to turn the majority bullish again. This means it could last as long as a couple more weeks, while it blows up bears repeatedly and convinces the masses that the prior decline was just a correction to an ongoing bull market. This is what I was warning about on June 5, when I wrote:
I do believe bears need to remember that a strong snap-back rally is expected for wave (ii) after the current decline bottoms (assuming it hasn't already). This is worth remembering, because one does not want to short the entire way up during wave (ii) and potentially give back the lion's share of one's profits.
Hopefully, readers heeded that warning (along with the warning that trade over 1298 was bullish, in the same article) and closed shorts at 1298, and then waited until the 1336 target was hit before attempting new shorts. Those shorts should, of course, have been closed when warning levels were violated, or at the very latest, when 1336 was broken to the upside. If you're a bear whose heeded those signs, then you have certainly protected profits well during this rally.
The next chart I'd like to share is the Nasdaq Composite (COMPQ), mainly to simply show its present approach to one key overhead resistance level. It will be interesting to see if the bulls can sustain trade above that key breakout zone.
Finally, long-time readers know I think it's important to track indices other than those tracked by the mainstream media. One of my favorites is the NYSE Composite (NYA), which is a very broad representation of the total NYSE market. The NYA is also approaching a confluence of overhead resistance, shown by the falling red trendline and falling blue channel.
I have also noted the potential of a large head and shoulders top in formation. It's important to realize that unless and until the neckline is broken, this is only a potential. Patterns such as head and shoulders require confirmation by a decisive break of the neckline -- but it always pays to be aware of them early.
In conclusion, I remain skeptical of this rally from an intermediate-term perspective, but the current short-term uptrend should probably be given the benefit of the doubt until proven otherwise. The potential does exist for an immediate reversal, but barring that, we should probably assume we are facing a higher degree wave (ii) rally -- the first target for which is 1348. Over the intermediate term, there are some levels which could shift me to a more bullish stance, but it appears the bulls have their work cut out for them. Trade safe.