I really hate to do it, but the market is unwilling to pull back for now, and I need to switch to a BOT long signal tomorrow. As Jesse Livermoore said, “a stock is never too high to buy and never too low to short”. I have been on the neutral signal for some time now because I wanted to see how the market would react to resistance at 1300. So far it has been a non event. Please refer to my previous post on the sp500 possibly transferring to the ‘parabolic’. I believe this was a key insight and helps to create an understanding of the type of trading dynamic we are in right now.
I realize there has been a lot of talk about the supposed rising wedge on the sp500. The problem with wedges are twofold. First there is a tendency to try to identify them repeatedly on market indices when they do not really exist. Secondly, these supposed wedges have a bad habit of turning into running corrections and then breaking out in sometimes near vertical fashion through the apex of the wedge. That type of behavior is also consistent with parabolic trading markets.
Attempting to identify tops from rising wedge formations that continue to persist higher is extremely cumbersome. It is better to wait for better longer term reversal signals such as the quarterly sp500 chart plotted against quarterly RSI. I believe that this will be a superb turning point signal. More on that in a future post.
One could argue that we have already completed a parabolic portion given the apparent near vertical nature of the current weekly chart above. However the top red channel line appears to be an ideal strong magnet for the market to trade into eventually. The sp500 is still holding up trend line support and until that breaks I don’t see how the case can be made for a major market break down.
The chart above shows the possible rising wedge in the 2003 time frame and the eventual topside breakout from this false rising wedge.
It could still be that a lot of supply will come into the market assuming the sp500 can get into the 1300 zone. We will just have to wait and see what transpires assuming a surge up into that zone later this week.