Posted by Danny on February 16, 2016
US stock markets came under pressure again last week, but we didn’t quite get the breakdown that some participants seemed to expect and stocks rebounded by the end of the week. The successful retest of the January 20th low in the S&P 500 and the quick bounce off that level suggests that the path of least resistance may have turned up. Here is the current chart:
The support line just above 1800 is now even more important, and I wouldn’t like to see it revisited if this market is to continue to the upside. Yet another test of the 1800 level would very likely result in a serious selloff. A climb above 1890-1900 would tell us that the new year slide is over and then we can set sights on 1950-2000 again.
Technically the slower Earl2 (orange line) keeps going up, while the Earl (blue line) and MoM indicators are about to print bullish divergences if they turn up from higher lows (compared to the January bottom). That would be a very attractive setup with good potential for a +100 point rally in the S&P.
Last week a few readers chimed in to let me know how terribly bad my LT wave for February is doing. Never mind that the LT wave called for weakness in the first half of the month, which is what we got. But some readers seem to expect that the LT wave will mark the exact low day of the month without fail. That’s not going to happen with any method. I understand that some people keep hoping to find a perfect method that lets them rake in easy stock market profits. But in real trading one should be happy to find something that works 60% of the time, and even that is not easy.
Keeping with realistic expectations can put a trader a step ahead of most other investors already. If we expect to be wrong 40% of the time then we will be better prepared for losses. And if we are prepared for losses then we are also ready for gains.