This is how the Sp500 stands. The consolidation is comparable after both QE announcements, if the market now proceeds to rally, and it has twin technical support for an uptrend resumption, as shown:
Its a useful triple confluence (channel support, holding above March highs and behaviour similar to the last QE announcement), because a decisive breakdown would swiftly provide 3 reasons to be bearish (i.e. triple confluence failure). I say decisive breakdown, because the market can sometimes make a fakeout to flush out the weak hands, so I’d want to see a couple of consecutive closes beneath the marked zones, to give more weight to the bearish alternative. The positive pressure around Monday’s new moon is still in play if the market can rally today and early next week, which gives us another reason for a renewed rally without delay, if it is going to happen.
The correction so far has largely neutralised indicators, such as II investor sentiment (now more bears than bulls), stocks above the 50MA (now back beneath the mean), and bullish percent / call put (neutral zone). If the correction is going to be a full flush out (or a new bear), then we’d expect these indicators to go all the way to extreme oversold/bearishness, but if this is just a consolidation in an uptrend then they have reset enough to push on again. I am still in the continued uptrend camp, and still expect the SP500 can reach around 1600 before keeling over. I maintain that because we don’t yet see the typical evironment for a cyclical bull market top (yields rising, inflation rising, leading indicators in a renewed downtrend, economic surprises in a downtrend, negative breadth divergence, etc) and that there is growing evidence of reflation.
What few US earnings report there have been so far have on average beaten expectations, but next week will produce a better sample. ECRI leading indicators rose again last week and this week the shadow index is predicting the WLI growth will rise to 5.53 from 4.67. Conference Board leading indicators for the UK came in positive again today and higher than last month, but we have to wait until the end of next week for other country updates. OECD leading indicators came in unimpressive again this month:
The horizontal lines represent historic average growth, not a growth/recession divide, but nevertheless they don’t paint a picture yet of a global economy in resurgence. The particular bright spots in their report were Brazil and UK. There is a potential trend change in China occurring as shown, and the Shanghai stock index continues to look like it may be breaking out of its long term downward trend, plus the Baltic Dry index has risen 40% over the last couple of weeks, so I continue to watch these.
Yesterday grains had a bumper day as the latest US Department of Agriculture report suggested stockpiles will drop more than expected due to the adverse weather conditions and continued robust demand. And the US dollar index made an inverse hammer candle at both horizontal and diagonal resistance.
That’s only significant if there is now follow through, so again my focus is on how pro-risk and safety behave the next couple of sessions.