Three weeks ago I wrote: “If, however, as it is the case today, we are tracking an exceptionally strong counter-trend rally, we can assign a more liberal count to the trend and, in that case, we come up with 2058, 2070, and perhaps even 2080 before we reach a reversal point.”
The week before last, SPX reached a high of 2057 and had a 26-point pull-back before moving to 2072 last week, and retracing 23 points. It then rallied again to 2075 in the last hour on Friday, and closed at 2073. Are we done, or do we reach 2080, first? And do we go even higher?
My heading this week is: “SPX STRENGTH IS DECEPTIVE!” I will show you why later in this article, so I won’t discuss it just now. What I will say is, that although the SPX reached new highs last week — something which had been forecast by the P&F projections stated above, using Janet Yellen’s dovish remarks last Tuesday as a catalyst to reach the final target – that is not the whole story! Relative weakness has continued to increase in some leading indicators and, as we will see in our analysis section, increased weakness is evident in the daily and hourly indicators of the SPX. There is too much correlation between these indicator patterns and short-term market tops for it to be ignored. It does not necessarily mean that the market will crash at the opening Monday morning, and we could even go on a little longer before reversing, but time is getting short and more price extension is less and less likely!
When we do reverse, we will need to see how much weakness occurs during the correction. A possible pattern would be that of a trading range until there has been enough distribution to suggest that a new low will be made in the primary downtrend. As I stated earlier, the index would have to surpass 2116, at a minimum, before we can consider turning long-term bullish again. And, the whole market would have to start looking bullish as well. Right now, it does not!
