The sp500 continues to trade with astonishing strength in terms of price resilience, but not in terms of volume. Price continues to act strong and we still have not created any bottoming tail on the monthly, quarterly or yearly price candlestick chart of the sp500.
The fact that the market is unwilling to create any bottoming tail on the yearly candlestick at this point should probably be interpreted as an extreme sign of strength. Yearly price candlesticks with no bottoming tails are extremely rare. Of course it is also true that the market has the option to create a yearly 2011 bottoming tail at any time during the rest of this year, but for now it is in no mood to create one.
There is still a strong resistance zone at 1300 to 1313 at which time I would expect some type of pullback. Whether or not this level is worth shorting remains to be seen.
The NYSE summation index ticked higher strongly again today and shows there is still enough upward momentum for higher prices maybe into end of January. It looks as though January is going to be an up month giving the bulls exactly the statistic they were looking for.
So why all the market strength that seems relentless ? Perhaps you remember the large cup and handle pattern I discussed on the sp500 some time ago ? The cup and handle pattern is a quite reliable pattern that is typically found in strong up trending stocks. The cup and handle pattern in the sp500 translates to hundreds if not thousands of similar large cup and handle patterns in individual stocks each at different phases of creation.
This market dynamic creates a situation where you have new cup and handle breakouts occurring every few days. That is why the sp500 is so strong and powering relentlessly higher because it is a market average that has melted all the different cup and handle patterns at different stages of breakout.
So sp500 strength is great but does it ever end ? Of course it does and it always will. If it does not end, then it will consolidate before moving higher.
The WEEKLY RSI on the sp500 right now is 72.53. In April of 2010 the weekly RSI hit 72.62 right before it topped out. However I do not view the currently weekly RSI reading as a sign of an imminent top yet.
Rather I like to view the current weekly RSI reading as a sign of strength of the market and one that is currently trading in the ‘weekly power zone’.
It is going to be interesting to see how long the Weekly RSI will be able to remain above the 70 power zone level. In 1995 the weekly RSI remained above the 70 level between 6 to 9 months before the market finally got a more serious correction going.
In the 2004 period the weekly RSI blasted above the 70 level also near the January time frame but then double topped out finally on March 5, 2004. The seasonality factor could top us out at a similar time frame.
At this point it would only be a guessing game as to how long the weekly RSI will remain above the 70 level. But for now the presumption still has to be that the market wants to trade within this powerzone.
We need a decisive break of weekly RSI back under the 70 percentile line again to signal that the super power uptrend is over. Until that happens one must presume strength.