Several weeks ago I discussed with you that there was a big chance that the U.S. stock market had finally topped out.
Well, the decline from the July’s top was initially looking as a five (meaning an impulse move), but eventually remained correcitve. And as no surprise S&P500 rallied strongly last week.
The Ending Diagonal pattern from Oct 2013 low i still theoretically possible but is no longer prefered. But even without this Terminal pattern, the price pattern remains toppish here. The sentiment had also reached (and is still at) extreme levels. But there is still no top in the market. What’s missing?
Well, two things are missing, in my opinion.
First, the Advance-Decline line is still rising which indicates the majority of stocks continue to participate in the rally. Usually the A-D line tops several months before the market tops, and obviously this is not the case now. The last top in A-D line was also in late June which is just a bit before the July top in S&P500. That’s not enough to signal a major top. So, I am pretty confident now that the market is still far from its top, at least a couple of months.
And the next thing that is missing is the breakdown of the chart of S&P500. Yes, it broke down a month ago below the 1955 level and that brought a fast decline twd 1900. But on the daily and weekly charts, the trend is still higher and is still strong. We need to see a break below 1900 level at least (this month’s low). And preferably this breakdown should occur after the market consolidates above that level for several weeks. Right now, there is no topping phase on the daily chart, not to menstion the weekly chart which remains in massive stage two bull market.
Bottomline, it is not over until it’s over. So, the trend remains higher. I am cautious, but right now I still prefer to look for stocks that have bullish patterns rather than for stocks that are likely to break down.
Trade with the Trend!
Alexander
http://www.Trendrecognition.com
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