Another minor top was projected for this week, and the market complied once again. We’ll continue this price action until we can say “the intermediate top has arrived.” But that could still be a couple of weeks away and, in the meantime, more new all-time highs are still in store. In fact another new one should be just around the corner after we have another minor correction.  

It has been an amazing performance for the stock market considering all that is going on in Washington DC. It would be interesting to speculate on how it will end, but this is not the purpose of this newsletter, so let’s confine ourselves to speculating on (not “in”) this irrationally exuberant market, and where it will take us.  As far as we can tell, the end of the bull market is not in sight.

Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart:

After briefly dipping below the (dashed) mid-channel line of the intermediate-term channel from 1810, SPX quickly recovered and moved above it again. I should mention that keeping prices in the top part of a channel and refusing to decline in the lower half is a sign of strength, just in case you have difficulty of arriving at that conclusion simply by looking at the price move itself.  And, as mentioned above, the bulls are still very much in charge since the index just made another all-time high, but the indicators are beginning to tell us that this will not last too much longer. Not only are we showing negative divergence in the CCI, but the two lower indicators have gone negative and have not been able to get back on the positive side of the zero line in this last advance. This is a warning that a correction is just around the corner and that the risk factor is rapidly increasing. But it’s not time to panic, yet.

We should still have another short-term correction – a little larger than the last one – and then make another new high. This is when swing traders should pay close attention. Longer-term investors may choose to ride out the 100/150 point-correction that lies immediately ahead and wait for the next market top after that. Just as short-term retracements become increasingly deeper as we approach an intermediate term top, so it is for longer-term ones and the next important correction after the one which is almost upon us should smart even more.