Yesterday’s upward move in the SP-500 or SPY was impressive but also suspicious due the relative weakness of average short-term volume vs. average intermediate-term volume. The index has also hit a wall of resistance at its 20 day moving average and it is failing to maintain support at the widely followed bellwether 50-day moving average. In fact, the only thing positive about yesterday’s upward move is that it established an upper channel boundary for the short-term downtrend which is beginning to extend itself. Negative momentum is beginning to accelerate.
From a longer-term perspective, the bull is still kicking up plenty of dust in the equities market. However, we are presently experiencing an orderly correction within its bullish channel. In plain English, the recent high has established resistance for the channel and now we must establish a higher level of support for the channel to sustain this uptrend.
Think of the above as a dance between bulls and bears with the bulls leading and the bears following a pattern to settle for higher lows each time they attack. At some point, the bears frustratingly capitulate and and then a bullish chaos occurs on the dance floor. The market, like a drunkard who has consumed too much punch, lacks the ability to make any coordinated orderly moves. The dancers are staggering all over themselves and each other. Then suddenly the music stops and there is a “singularity’ moment of clarity and everyone simultaneously rushes for the single exit in a panicked frenzy (which by the way is the exemplary inverse of what occurred before reaching the bear market low of March-2009). This is when we will know that the end is near. I know it sounds counter-intuitive, but I’ve studied and meditated over charts and market cycles over the years and not much has changed. Life can be observed through a series of patterns and cycles, which are a key component to understanding human nature’s struggle with the process of progress and evolution.