We have remained bullish over the last ten weeks; however that doesn’t mean we have sat idly back 100% allocated to equities, riding the S&P back and forth within the 100 point congestion zone. We remain bullish as the market passed an important test last Friday by settling well above 1204.00 (1219.00 to be
exact). 1204.00 represented the upper region of our congestion zone (1114.00 – 1204.00) which captured 90% of price action for the last 11 weeks. Regardless of the upside break-out, for the last eight trading days we have identified key resistance between 1235.00- 1255.00(combination of the green Moving Average Line and the blue horizontal resistance line which we have had in place for several months; see chart above of the S&P). This region is currently posing the next big challenge for a market which has had to consistently deal with poor fundamental news. Thus far, as it is playing out day to day, the Index hit a high of 1230.00 (just under initial resistance of 1235.00) on Tuesday, and has since come under pressure the last two trading days. For our readers, we have suggested during previous rallies to reduce risk at the upper range of 1186 to 1204. If you have been reading our free research you took action and bought the S&P 500 at 1090 when we hit the intraday low of 1074 on Oct 4th.
For our Free S&P 500 news letter visit www.thechartlab.com
So where is the market headed?
Nothing has fundamentally changed in the last 11 weeks. Companies began reporting earnings two weeks ago, with 70% of the S&P companies that have reported beating their estimates. We believe this rally is purely constructed on human behavior – behavioral finance. You can see from the chart above the natural progression of human behavior in the markets: you have a cycle led by optimism, excitement, relief, anxiety, denial, panic, maximum amount of pain, and lastly, optimism.
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