S&P Update

I wrote the week before last that it was probable the S&P was near a turning point. Two potential topping points are 1410 and 1460. Market internals don't seem to support 1460 but we've also passed 1410. So, we shall see. Anticipating a possible correction the week of the 5th instead turned out to be a mild downside move. In fact, as you can see from the chart below, on the 7th the S&P held ground at the intersection of the rising wedge's bottom support and another trendline in place for the last handful of months. (The full chart isn't shown for clarity.) It's reasonable to assume upward pricing action since then was affected by last week's options expiration. In other words, the rally beyond the 7th was likely an effort to shrink the options premium as so often appears to be the case in counter-trend moves during options expiration week. Proof of that fact will mount if the market cannot rally from here.

I am reasonably confident regardless of the direction, normally this pattern should have resolved itself before now. Most often channel patterns such as this resolve themselves approximately two thirds of the way through the pattern. Or, as more technical traders might note, specifically near 61.8% of the way through these patterns. This pattern is now very old yet still hasn't broken.

I pulled this chart of the S&P near the close yesterday and the market had a reasonably strong reversal off of the upper wedge trendline that we've shown in the last few weeks. The complacency is very high right now and the animal spirits are dripping with excessive greed. Yet, for all of that the last month's return on this chart is basically zero. This is the weakest rally off of a significant correction in ages. Without looking, I would definitely say the weakest in at least ten years.