Friday, January 17, 2020

SPX and INDU: Market Attempting Key Long-Term Breakouts

Last update provided a timely invocation of "Never short a dull market," and the market has rallied nonstop since.  Today, we're going to take a look at a couple of potentially important long-term breakouts.  First, SPX:

We can see SPX is attempting a breakout over its long-term channel, which goes all the way back to the beginning of last decade.  The channel isn't perfectly defined, though, so there's a little wiggle-room there -- but going back to 2011, the only other time SPX got above the black line was at the end of 2017, during the prior minor extended fifth -- so this breakout will be significant if it sticks, and would indicate that the bull market is entering an acceleration phase (as crazy as that may sound to bears).

"If it sticks" is the operable phrase, though, and the market has not yet tested the breakout, which it would normally be expected to do at some point.  In the event that test were to fail significantly, then we could see a redux of the beginning of 2018.  Presently, I do not expect that to occur.  Back at the beginning of 2018, long-time readers will recall that I actually predicted 2018 would "rhyme with 1987" -- that we would have a mini-crash in the context of an ongoing bull market.  That prediction proved uncannily prescient, as we had both a deep and scary mini-crash, and now a resumption of the "ongoing bull market."

Point I'm getting at is that the waves appear to be in a much different position than they were in 2018, and SPX appears to need multiple fourth and fifth waves at higher degree before it can have a longer-term correction again.  Though, to be entirely fair, it does have about 300 points of downside that it could play with if it wants, so I suppose there's some room for a scary intermediate correction -- but we'll worry about that if and when the breakout whipsaws, because we could just as easily see a repeat of 2017's extended fifth, where RSI just keeps getting more extended.

In other words, as the advice so often has been for bears over the past 10 years:  Await an impulsive decline before getting too excited.  If an extended micro fifth materializes here, then we could run another 200-300 points without any significant corrections.

So we'll have to live in the moment.  ;)

INDU is likewise attempting to breakout over a long-term trend line -- in this case, represented by the blue line:

In conclusion, SPX and INDU are both staging breakouts over long-term trend lines, which could put them into acceleration phases (as crazy as that may sound at this stage).  We will continue to track the short-term and stay alert to any potential impulsive declines, because the next impulsive decline could signal at least a larger, potentially-tradeable fourth wave.  Trade safe.

No comments:

Post a Comment