Lately the Fed has been doing something different, and no, I'm not talking about their personal hygiene: They've been talking down the market. Yellen recently stated that stock valuations were "quite high" (whatever that means). I feel like I can barely remember the last time the Fed believed that equities were overvalued
in terms of the broad market. To my recollection, the last time that happened, a fella named Greenspan was involved in sort of an irrationally exuberant way. (Yellen talked down "smaller firms" in social media and biotech last year, but not the entire market -- and taking shots at social media doesn't even count, because social media is virtually
always overvalued. As far as I'm concerned, anyway.)
So it seems that maybe, just maybe, the Fed has finally begun seriously considering the idea that it doesn't need to be
quite so incredibly accommodating anymore. Assuming the Fed stays consistent in that view and begins tightening, that will ultimately have an impact on the market.
Of course, it bears noting that when Greenspan made his "irrational exuberance" comments in 1996, the bull market still had several years left in its tank. But we are certainly in a different position now than we were then, and I have maintained for some time that we are in uncharted waters. The 90's bull market wasn't launched (and then carried) on the back of Quantitative Easing; and neither was any other prior bull market in history. So it remains to be seen how this current bull market ends, and whether or not it will end in a similar manner as previous bulls.
So, with that simple stuff out of the way, let's take a look at the charts. As I've been continuing to note for several weeks, we're still inside a very well-traded range. The trouble with trading ranges is that they create a ton of noise on the charts, and noisy patterns give the market a lot of options in terms of wave patterns. It's thus becoming increasingly difficult to try and simplify the charts into something easily-understandable, but I've tried my best to do so.
What we'll do is start with some basic charts and work our way up in complexity. First off, a simple near-term support and resistance chart. This should be viewed with the understanding that near-term support and resistance grows increasingly weaker (and eventually meaningless) inside an old trading range:
For the bigger picture, this is the most simplistic chart I can come up with for SPX:
Moving over to INDU, we can see that the pattern is actually growing exponentially more complex, but I've tried to reduce all that into a few fairly simple concepts: (continued, next page)