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Waiting for the kiss

Posted by Dan on July 18, 2016

The S&P 500 has reached new record highs and has kept up surprisingly well all week. Will this market just keep climbing without looking back? Maybe.
The S&P 500 chart may offer us a few clues:

^SP500 (Daily)  10_15_2014 - 7_15_2016

There is no clear overhead resistance level at this point. But the Earl indicator (blue line) is turning down already and the MoM has reached very optimistic +8 level, which is quite rare. This suggests that we “should” get at least a bit of a pullback here.
When a market breaks out from a long sideways pattern it is classic to turn back and kiss the old support/resistance line before continuing in the direction of the breakout. In this case that would mean a drop back to ~2130. That’s my current base scenario, given that we remain in a lunar red period. But of course we cannot rule out that the market may climb even further before taking a vacation.
This market is bullish until proven otherwise, and I wouldn’t fight the trend. Let’s see if we get that kiss.

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