The short-term correction ended last Monday morning when the market opened with an upside gap and, after a minor consolidation, took off to the upside. The uptrend lasted practically until the very last tick on Friday. To say that the market is short-term overbought would be an understatement but, according to the Fear & Greed index, the market is also currently in a state of extreme greed. Combine this with the chart below, and you have a strong caution signal that we are very close to an intermediate top.

This is reinforced by projections to only slightly higher levels which could end the uptrend from 1810.  I had stated earlier that a base at that level gave SPX a minimum target of 2240, but this was eclipsed by this week’s strong advance. Other potential projections of interest for this advance are 2270, 2290 -2300.  

In last week’s letter, I mentioned two opposite points of view about the market’s future potential. It will take a while to assess which of the two is correct. For now, the long-term bulls are apparently firmly in control.   

The relative value of QQQ to SPX (above, courtesy of StockCharts.com) did not improve in the past week. Considering that SPX’s strong showing was not reflected in the performance of QQQ, we would have to say that the relative strength of the latter did not improve. This is what the chart shows.  

Analysis (This chart and others below, are courtesy of QCharts.com.)

Daily chart

The SPX concluded about three months of corrective action across the wider blue channel and, from 2084, started an uptrend which reluctantly broke above the previous high before a pull-back which was caused by the 6-wk cycle. It then started up again and exploded upward as soon as it made a new high, by-passing several phase projections which could/should have initiated minor consolidation phases. The momentum carried into Friday with the index closing at the high of the move as it approached targets generated at the 1810 low. Since 2084, the index has been trading in a smaller channel, but it is meeting with some resistance that should prevent it from reaching the top of both the smaller and larger channels. Considering the warning issued by the sentiment index, if the move is confined to near-by projection levels, it should not be too long before the lower lines of both channels are challenged.