The S&P 500 gained slightly during the session on Thursday, but gave back many of the gains that the market had carved out. This formed a shooting star, and this is the third shooting star that we’ve seen to lead to a third consecutive lower high. While the market overall looks relatively healthy, one cannot help but notice this particular phenomenon.
This suggests to us that perhaps the resistance is getting stronger and stronger, and as such we may fall in price. We could in fact, very easily fall down to the 1420 level without breaking the recent consolidation area. The last couple of sessions have been overly bullish, and as such a pullback is probably needed. Also, you have to realize that the market is essentially running on the idea of all of the quantitative easing the Federal Reserve is expected to do in the following months and years.
There are a lot of earnings concerns right now, and as such we think that the S&P 500 a struggle over the short-term. However, over the longer-term the chart does look rather healthy and we are still going from the lower left to the upper right, so of course we feel much more comfortable buying than selling. In fact, on pullbacks we see this is an excellent buying opportunity to take advantage of a longer-term uptrend.
With quantitative easing been so massive, it makes sense that over time it traders will be forced to leave the treasury markets and invest in riskier market such as the S&P 500. Especially interesting for many traders will be the dividend play, which of course is almost always stronger than the return you can get off of a government bonds. With this in mind, we think that the S&P 500 will be forced higher, even as the value of the dollar means less. Going forward, we think that a break of the 1480 level would be significant, as it would clear at least two of the shooting stars that presently keep this price lower. As for selling, we simply won’t do it until we get below the 1400 level.