The Market Is Telling Us Something Has Changed

Aug. 03, 2016 3:42 PM ETDIA, DOG, QQQ, SPY, VOO12 Comments
Chris Ciovacco profile picture
Chris Ciovacco


  • A market wizard speaks about historic highs in stocks.
  • What changed to push stocks above a multiple-year range?
  • Relevant S&P 500 levels to monitor the breakout.

Why Were Stocks Stuck In A Multiple-Year Range?

The Dow (DIA) stayed inside the orange box below for over two years. Only the market knows the reason for the sideways action, but we can hypothesize the Fed's desire to raise interest rates played a big role.

Why Were Stocks Able To Break Out?

Whatever was holding investors back for over two years must have changed in some material way given the Dow (DOG), S&P 500 (VOO), and Nasdaq (QQQ) have all broken above their long-term consolidation patterns.

Something Has Changed

In the original Market Wizards book, Larry Hite, who developed a highly successful trend-following system, told Jack D. Schwager:

The second [useful] item is something Ed Seykota taught me. When a market makes a historic high, it is telling you something. No matter how many people tell you why the market shouldn't be that high, or why nothing has changed, the mere fact that the price is at a new high tells you something has changed.

What Changed?

Once again, only the market (SPY) knows the answer to the question above. However, we can hypothesize markets started to believe high levels of global debt would cause central bankers to remain ultra-loose and asset price friendly, as outlined in detail on May 11.

Any breakout can fail, but as noted above, the current set of breakouts have already passed the textbook window for a typical failed breakout. Could the breakouts still fail? Sure they could. However, as long as the S&P 500 can hold above the 2,100 to 2,135 range, the higher the odds equities have more upside. If the S&P 500 cannot hold 2,100, we will be giving our growth-oriented positions a shorter leash.

This article was written by

Chris Ciovacco profile picture
Chris Ciovacco is the founder and CEO of Ciovacco Capital Management (CCM), an independent money management firm serving individual investors nationwide. The thoroughly researched and backtested CCM Market Model answers these important questions: (1) How much should we allocate to risk assets?, (2) How much should we allocate to conservative assets?, (3) What are the most attractive risk assets?, and (4) What are the most attractive conservative assets? Chris is an expert in identifying the best ETFs from a wide variety of asset classes, including stocks, bonds, commodities, and precious metals. The CCM Market Model compares over 130 different ETFs to identify the most attractive risk-reward opportunities. Chris graduated summa cum laude from The Georgia Institute of Technology with a co-operative degree in Industrial and Systems Engineering. Prior to founding Ciovacco Capital Management in 1999, Mr. Ciovacco worked as a Financial Advisor for Morgan Stanley in Atlanta for five years earning a strong reputation for his independent research and high integrity. While at Georgia Tech, he gained valuable experience working as a co-op for IBM (1985-1990). During his time with Morgan Stanley, Chris received extensive training which included extended stays in NYC at the World Trade Center. His areas of expertise include technical analysis and market model development. CCM’s popular weekly technical analysis videos on YouTube have been viewed over 700,000 times. Chris’ years of experience and research led to the creation of the thoroughly backtested CCM Market Model, which serves as the foundation for the management of separate accounts for individuals and businesses. Copy and paste links into your browser: Market Model: More About CCM: YouTube: Twitter: CCM Home Page:

Disclosure: I am/we are long SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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