If you've been watching CNBC this week you may have seen Art Cashin lay out his "super rally" scenario. It's essentially a massive short-squeeze caused by those bears who bit on the S&P's break of the neckline of the head & shoulders pattern (H&S) many people had been watching. Of course that breakdown turned out to be a head-fake. So Art theorizes that as the S&P takes out the right shoulder and then the head of the H&S those bears will scramble to cover their positions and push the market even higher. Judging by the intraday action (no dips/melting up) on Monday and yesterday I think there's a lot of short-covering going on. Heck, I'd just call it panic buying, which is probably also being done by people who are not short but are fearful of missing out on any upside.
I've always preferred to see the market weak ahead of earnings because it felt as though it was easier to spark a rally since expectations were apparently lowered. We were in that situation to start this week but now we're in the opposite situation. The indices are short-term overbought and heading into resistance from the 2009 highs. It may be tempting to try to chase stocks here but I believe there will be some earnings disappointments in the coming weeks that will create better buying opportunities.
Everything is up once again...
| Trend | Nasdaq | S&P 500 | Russell 2000 |
|---|---|---|---|
| Long-Term | Up | Up | Up |
| Intermediate | Up | Up(+) | Up(+) |
| Short-term | Up | Up | Up(+) |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I'm simply using the indices' relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.
Looks like a possible double top forming on the S&P500. Im with you, its tempting to go long here and buy more, but prices will be better.
Some random thoughts:
There is a massive inverted head and shoulders formation on the SPY and similar. If broken on high volume, would be v bullish.
That aside, the rally since March has been directionless for a couple of months. However, breadth indicators like the NYSE advance-decline line are (not yet)showing bearish divergence.
Even if the market breaks out from its current trading range, there is so much resistance quite soon above that the significance of the breakout is limied: unless accompanied by v heavy volume.