The recent price action in the SPX has taken it to new bullish extremes in just about every sense of the phrase, much like what has happened in the NIKK, DAX, FTSE, NDX, etc., etc, and so on, and so forth. In fact, the price action in the SPX since last summer closely parallels the same from the 2006 lows into 2007 highs, and, in many respects, the entire 2009 to present rally mirrors the 2002 to 2007 rally: they both started with sharp gains, spent a couple of years inside choppy ranges with upside biases (much "choppier" this time around to be sure), and a final stage with sharp gains to finish things off.
2009 to Present SPX Price Pattern
Now, I am not saying we're done (nor am I saying there's more to go), rather I'm just pointing out various price patterns similar to Lazlo Birinyi's four stages of a bull market thesis and its performance expectations. Birinyi said in January that he believes "the bull market likely entered its fourth and final stage last summer". The chart above certainly depicts that type of overall pattern along with a Fibonacci pattern of compressing cycle time spans culminating in "V" reversals working up into a possible momentum peak.
Don't forget the larger pattern context in which the above chart of the SPX finds itself, that is to say, the rising wedge and its overthrow, and how it all relates to the USD and Treasuries. The first chart below is an updated version of a chart I originally posted here and which is still looking for some sort of definitive resolution.
SPX and USD Correlation & Patterns
SPX and USB Correlation & Patterns
The above charts show some very interesting phenomenon like the "broken" USD-SPX inverse correlation and how both their shorter and intermediate term positive correlations have strengthened into their respective recent SPX price high spikes. Of course, the possibility that the negative correlation is on the verge of returning is another point of interest, as well as is a spiking SPX-USB correlation that tends to spike higher into intermediate term equity tops.
Nevertheless, and in spite of (or perhaps better said precisely because of) current overbought readings in equity markets from sentiment, to technical indicators, to price extremes, to margin extremes (you know the drill, there's nothing substantially new here so I'll spare you the diatribe), the most recent price action of the last 3 weeks has caused me to re-evaluate my longer term view, and suffice it to say that my initial conclusion is that any future downside will be seriously conditioned by former resistance prior to recent breakouts now turned support as best seen in the former upper range boundaries of the following charts.
FTSE Range Break Higher
RUT Range Break Higher
TRAN Range Break Higher
And then there're the laggards with very positive price action marking out very clear support and resistance levels.
IBEX Bullish Setup
CAC Resistance Turned Support
Regardless of whether this most recent rally is last gasp price action, or the kick-off to much higher and sustained prices, even in the worst case scenario where a multi-month cyclical bear were to begin, the price action of these last 3 weeks has made an indelible and never to be erased contribution to the charts that considerably improves the longer term bullish scenarios in my opinion.
Last week I left you with a "straight up or not at all" summary statement, and it was pretty much straight up (until EOW anyway when the bears were allowed to come up and breathe a bit). It still remains to be seen whether this is last gasp, or kick-off in nature, as does the question as to how much higher we go before we get the eventual reaction, but that reaction will come, and when it does, I think it'll bring us a lot of answers to a lot of our questions.
It is what it is . . . until it isn't.
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Recommended complementary reading:
The BTFD Strategy Has Never Worked Better (But Beware)
How To Manufacture A Record High Stock Market Close On A Friday Afternoon
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Some Additional End of Week, Short Term Trading Comments
Friday started out in Europe looking like it was going to be another panic buy in equities and panic sell in US Treasuries day similar to what we had seen on Friday of the previous week. The initial sensation was one of “here we go again” and disbelief. An intraday reversal lower in the indices that ultimately left a gravestone doji on the DAX, but little elsewhere - when it was all said and done - as the reversal lower was treated as another rapid fire buy-the-dip on the part of the bulls who actually turned the global trading day back to Risk On by the NYSE close with the US indices closing green (European futures as well), gold and crude putting in long legged hammers, and Treasuries going all the way back into panic sell mode finishing close to their lows - the lonely standout truly repeating last Friday's panic (they did bounce at their 50% retrace levels though). The USD was able to hold on to about half of its intraday gains however, adding to substantial gains from the day before (this week not just holding above its Thursday gains, but adding to them).
Bonus Chart: USD Weekly
