Maybe I was going color blind but after 7 straight up days I was beginning to forget what the color red looked like. Today saw the indexes stay red for the longest period of time of any over the last week, but there was also underlining strength. The S&P500 couldn’t sustain much downward momentum below 1,550, hitting a low of 1,548.24, which I read as more evidence that even the bears are content in seeing a new all time high in SPX.
In today’s market take I’m gonna focus on one thing:
What will I make of the S&P500 if it isn’t able to make all time highs very soon, but instead consolidates up here without giving up recent gains?
As frequent readers know, I am expecting SPX to break 1,565 and make all time highs very soon. After watching the markets today though, I reminded myself that I also have to be more open minded, and not just outright bullish. While nothing I saw today changed my expectation for new all time highs, I did ponder the idea of staying in this 1,545-1,555ish range all week and what that might mean for the market. To me this is a unique situation, for one main reason, that would mean we are consolidating under all time highs.
Usually when I see consolidation near highs on a chart, I take it as a bullish sign, because it is “holding” gains, but I think this is a different situation due to psychology. You see SPX isn’t just consolidating under any other highs, these are all time highs, which means the attention focused on these levels is even more pronounced then it would be if it was say the 1,500 level. My sense is that, like myself, most traders are expecting to move above these all time highs any day now, but what if that doesn’t happen?
Let me introduce a key part of trading: time frames. You see, in my view, the longer the S&P500 takes to break these all time highs then the less bullish this set up will become. When there’s momentum like what we’ve seen lately, you want to see it sustain, not stall out, and especially not just south of all time highs. Should a stall out occur, I suspect bears will try super hard to force what would be a major potential double top on the technical backdrop. Again, this is not my expectation at this time, I simply being open minded to other possibilities so they don’t catch me by surprise and unprepared.
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