Prices have risen rather dramatically over the past 6 months, and many an analyst have extrapolated the recent price gains into the future suggesting that the bull market train is about to leave the station. And oh if you don’t jump on now….well you will regret it.
But I say not so fast. There is no great hurry to jump on that equity train. Why? Prices are at resistance levels, which means there should be some selling. There will also be some buying as the those late to the party will want to get on that bull market express. But I don’t see any great urgency.
Figure 1 is a monthly chart of the S&P 500 (symbol: $INX). The orange trend line is drawn from the March, 2009 lows . The break of that trend line (red down arrow) occurred back in August, 2011. Prices rebounded and have managed to retrace those losses, but currently prices are stymied by that rising trend line (black down arrow). This rising trend line (the orange one) will continue to be a bigger and bigger hurdle as it is likely to rise faster than prices, which have definitely flattened out over the past couple of months. The rising purple trend line is likely to come into play sometime in the future, and maybe it and price will meet up around 1225 SP500.
Figure 1. SP500/ monthly
Figure 2 is a weekly chart of the S&P Depository Receipts (symbol: SPY). A nice trend channel is drawn and prices are at the top of that trend channel. Of course, how prices got to this point is noteworthy in that they have gone up for the entire quarter on poor volume and breadth. In other words, with prices at resistance and a poor foundation underneath, I can easily see that this is not a launching pad for a new bull market. I suspect we will get a pull back to at least the middle channel line somewhere between SP500 1300 to 1350.
Figure 2. SPY/ weekly