Who needs a correction?

Last week I couldn’t get my weekly blog post out in time. So, we have skipped a week but it’s not like we missed much. Two weeks ago I wrote that the market may easily have another good week in it. That turned out to be correct, the market even had another two good weeks in it. And now it is bumping into some real overhead resistance. Here is the S&P 500 chart:

^SP500 (Daily)  6_6_2014 - 3_18_2016

The climb off the February lows has been very steep. This rate of change cannot be sustained for very long. The Earl2 and MoM indicators are flattening out at very high levels and the faster Earl (blue line) is probably painting a bearish divergence. The green trendline just above 2050 looks like a great place for a pullback to start.

But who needs a correction? Well, people who got into bearish bets in January-February did not get much of a chance to get out because the pullbacks have been very short. Too many of them may still be waiting for a decent chance to get out at an acceptable loss. If prices turn down near 2050 they may not drop much further than 1950-2000 because of late short covering. If that is the case then look for stocks to resume higher after a quick retreat or a sideways chop.

By Dan

Author of LunaticTrader and Reversal Levels method. Stock market forecasts based on proprietary indicators, seasonal patterns and moon cycles.


  1. George Soros may need a correction. His bearish calls and invitation to short the stock market (since when Soros cares about other market participants’ profits?) from January make me think if he has a big short position. If so, his covering may propel the market to ATHs in a violent way.

    1. Yes. Quite possible that Soros and some other hedge fund managers have been trapped with certain short positions (Ackman??). Some of them may not cover until the market climbs above the November highs (if not the summer highs), and that would mean more “forced buying” entering the market if it continues upward. Could be interesting…

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