Respecting the break of 1300.

Friday’s market move was significant, though not aggressive, and it has changed the perspective from offering a read portentous of a turn down before another turn up, to now offering a plan that continued upside may happen without a moderate pullback first.
The blip lower from over 1300 to 1295 in the S&P last week may be the last reversal we will see for a while. Initially the technicals told us to expect more of a decline, and then a reversal higher again, but the pullback I expected then may be muted. The technicals are now much more positive than they were, even before Friday’s session. The close on Friday was in fact very important and could have set the stage for a much more aggressive increase in the weeks that lie ahead.

Regardless of what lies ahead in the more distant future, the chart patterns have become immediately bullish, they are telling us that aggressive market increases are possible, and unless converted longer-term support levels break lower in the S&P 500 and the Dow Jones industrial average again, aggressive increases can follow.

The market has shrugged off bad news in Egypt and the tensions that exist in the middle east, it has shrugged off higher commodity costs and the tighter margins those higher costs are surely to impose on corporate America, and on Friday the market shrugged off an extremely disappointing employment number. You might be scratching your head wondering why or how the market could shrug off bad news like that. For all you know, I may be doing the same thing.

Although none of us can be sure, we do know that it happened, that is all that matters, and those are signs of a bull market too. For our purposes it is not what we think that guides our hand, it is what the market thinks that guides our hand, and we need to respect that. We do not control the market, but we rely on it for growth, so instead of imposing our will onto it we must react to it instead. If it is telling us to sell, we should sell, if it is telling us to buy, we should buy, and when it tells us that we need to change our tone for a while, we need to listen.

I know that significant headwinds exist in the future. I know the government will start cutting spending, and that means laying off workers, I know they will raise taxes, and I know corporate margins will come under pressure. I also know that year-over-year comparisons starting next earnings season will be extremely difficult. Given the findings of the Investment Rate and the Periodic Oscillator, I know much more than that, but these only direct us to a proactive approach to the market. They do not tell us to be one-sided or to never expect the market to look strong, or get ahead of itself like it might be now. Instead, they tell us to remain nimble, because the market will fall again at some point. Unless we remain nimble we will be hurt significantly as a result.

With what we know providing the foundation for our proactive approach, the technical indicators that guide our proactive decisions are telling us to become more bullish. Therefore, my reaction is to follow the market, and not impose my will onto it. Unless the S&P breaks below 1300 I will be bullish with an understanding that a significant upside move is possible.
For the time being, what is bad is good, and what is good is great, and that is a clear sign of a bull market. Late stage or not, there still may be a run left in it, and according to the longer term charts, we do not want to be on the wrong side if it starts to move. Therefore, my mindset is adjusting, and will probably remain ‘adjusted’ for a while unless a technical reversal occurs.

 

Great post.