About a month ago, I discussed the market was approaching an important decision point. To wit:
“Since the end of the 2012, coincident with the Federal Reserve’s implementation of QE3, the market has been on an unrelenting bullish trajectory that has defied weakening underlying economic data and market fundamentals. In other words, price momentum has deviated from underlying fundamentals as investor exuberance has escalated.
While price volatility has certainly increased in recent months, I have maintained a fully allocated portfolio model as the primary bullish trend has remained intact. However, it is worth noting that the current bullish trend is extremely long by historical standards.”
“I have also noted the historical buy and sell points as noted by long term MACD trends. Importantly, the MACD indicator is very close to issuing only its 5th signal since the turn of the century. While this does not mean that the next “financial crisis” is set to be unleashed upon the financial world, such signals have only been associated with previous major market tops.”
From the broader macro-technical perspective, the current bullish trend remains very much intact despite deterioration in market liquidity, equity outflows and weak fundamentals. The chart below, courtesy of Business Insider, tells the tale very clearly.
It is with this background that I want to update the technical underpinnings of the market. In my previous report, I showed the following chart of the market remaining trapped in a tightening pattern of higher lows and lower highs. This type of action is like the compression of spring.
I stated previously that I expected the consolidation to resolve itself to the upside due to the underlying momentum in the markets. As I discussed in this past weekends newsletter (subscribe for free e-delivery), the resolution of that consolidation has now been achieved.
