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Sometimes when you look deep into market action what you see is mud – no clarity. But sometimes it does not matter and this is a point in time. I say it matters little now as markets have run hard for the last few months – despite the strong head winds of European bail out issues etc – and they are not far off a mid-term high.
If you bought in weeks or months ago, you may have made some nice money. If you did not buy in, it is not too late. But I always believe there is another train coming so don’t worry about missing this one, which is about to reach its destination.
Let’s look at the S&P for a change:
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It does appear that the wave four is complete even though the algorithms tell us it has not – the wave four notation is ‘greyed’.
So there is every chance we will see the S&P attempt to move higher after what appears to be consolidation (albeit in the form of some vacillation) over the last few days. The uncertainty we have seen in the last few days is typical of the uncertainty we see as the markets near a peak, just as it is for mountain climbers.
We see uncertainty in markets after such a run because early buyers are thinking of taking profits and have turned into sellers. Initially there are not many new buyers but at some time new buyers will come in at the sight of good news. These will possibly unsuspecting buyers because markets now have a limited upside.
I say the near-term is muddy because when I look at a weekly S&P, I see the prospect that a retreat is not far away:
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The daily chart suggests maybe another small rally but it will be in the context of a retreat in the coming weeks and months, perhaps an orderly retreat. It will look orderly on the chart but maybe feel scary in the reality of every day economic life - there will be many twists and turns with economic news in the months ahead – especially if you live in Europe.
And when I look at a monthly chart, I am reminded that even a lay person could look at chart and conclude that it is time for a correction:
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And then again I ask myself whether this is a head and shoulders pattern unfolding or a triple top somewhere along the way. I am just playing with ideas as I really don’t use either theory because they are just a little too esoteric for me.
In summary, you can choose to trade or just sit on your pile of cash until the right ‘sleep at night’ setup comes along. It will come!
Enjoy the ride
Tom Scollon |