Market Bulls – Continued Dominance

As the S&P 500 pushes above the psychological barrier of 1400 today, the question arises as to the future direction of the market.  From a market standpoint, I am a long term bear but cannot overlook the the Fed and European support of the financial markets.  This support from the Fed continues to drive the markets higher as incredulous bears look on.  So where does the market go from here?

One of the common misconceptions that traders have is that when a stock nears the top of a chart it must pullback and go lower before the next move higher.  Stocks (and markets) that set new highs are typically doing something right which draws more money to push the stock even higher.  With a potential new market high looming,  we must embrace the possibility of an even stronger move higher.  Momentum (as shown by the MACD) is strong in the market and the underlying support of the Fed gives buyers great confidence.

A Break into a New High is Bullish

One of the technical instruments that gives some credence to the bulls case is the Bullish Percent Index.  The Index uses point and figure charts to calculate the percentage of stocks with bullish price targets versus bearish price targets.  In its simplest interpretation, a 6% move higher in the index is bullish for stocks while a 6% move lower is bearish for stocks.  Over the last 2 months there have been 3 bullish moves on the index of greater than 6%.  Until a 6% move lower is seen in the Bullish Percent Index, the medium term momentum of the market remains higher.

Bullish Percent Index

Given the fundamental situation of the market, major selling is always possible.  That said, the technical signs of the market remain strong.  Buying stocks setting new highs is likely to continue to work as long as the market remains above the 1380 level.


Posted on August 7, 2012, in Market Commentary and tagged , , , . Bookmark the permalink. Leave a comment.

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