WEEKEND JOURNAL NOTES
Sunday March 20, 2016
This week consisted of some downward to sideways consolidation into the Wednesday Fed meeting followed by aggressive buying afterwards. What came out of the meeting is irreleavant. If you want to talk about the Fed, this is not the place for you. We concentrate only on reaction to news and the price action and patterns that develop before and after it, and that is how we profit.
First let’s note that the similarities between this and the October rally are absolutely insane. Just look at this chart.
1) We are currently at day 26. (Oct Rally was 26 days)
2) October Rally 244.57 points, currently at 242.26
3) Failed at 161.8. We are just barely above that right now.
4) Both were double bottom cup/handle patterns. October ultimately failed before the target.
5) The consolidation into the selloff is nearly identical.
The big difference here in my mind are 2 things and they are very big things, which makes it feel like it could be different in the longer term outcome. This does not mean we might not take a rest, but we have to respect these 2 things until they change.
1) Seen below on this chart is that the RSI momentum in October diverged during the double bottom breakout. (see left side rsi below). However during this rally momentum is confirming the move. Because of this, I am far more neutral than I have been. It would not shock me to see 2084 acquired.
2) The expansion in breadth is far more than it was in October.
So where are we now? I do believe the market is in need of a rest, but that can be with time rather than price, and based on the breadth expansion and no sign of divergence, I would not get to cute with shorts. Very possible we just chop and not pull back to hard and currently there is no price action to suggest any significant pullback. We all know that can change in a session or two, but nothing yet.
Simply looking at the chart below, in order to be bearish, we would need to first break trend. Then 2005 and the 1970. Bears have work to do.
All that being said, I certainly will not be pressing longs in the indexes. I took my profits at the 161.8 fib and an now in wait and see mode. I see no reason to press longs or shorts. Stay tuned, if I see something significant I will post. I do agree that if this rally is going to fail. We are at an area where it should, I just prefer to have price action to work with, rather than blindly trade.
b. The 10/20 Month Moving Average Crossover Watch: T