Price Action Over the Prior Week
The equity market has been consolidating below the larger 2300-2320SPX resistance zone for quite some time. The market may be setting up to test our upper support zone between 2205-2240SPX. But, under most circumstances, we are likely setting up to rally to our next higher target zones.
Anecdotal and Other Sentiment Indications
They call this the most hated market rally of all time. No one has believed in this rally for years. Many claim it is "fake" or "orchestrated" or "manipulated." Most feel it is going to come crashing down at any time now. Yet, they have felt this way for years, while losing the opportunity to make a significant amount of money due to their fears.
A few weeks back, I wrote an article here at Seeking Alpha explaining why the average investor always maintains a sense of doom, and why bearish "sells." I highly suggest you read it so that you can "get in touch" with your bearish feelings and understand why your "feelings" have caused you to miss huge opportunities in the equity market.
For those that remember the rantings of pundits and analysts before the election, everyone was quite certain that the stock market was going to crash should Trump be elected. Yet, the market did the exact opposite. Has anyone given any thought as to why beyond the superficial?
In fact, I highlighted this in a metals article I authored last week at Seeking Alpha:
No matter how long I do this, I am still dumbfounded by the stupidity and intellectual dishonesty of the financial media and analysts. No matter with whom you spoke, or who you were reading, the consensus was overwhelming. Before the election, everyone was so certain that Trump's policies were going to be terrible for the market and economy. Everyone was so certain that the stock market was going to tank BIGLY.
Yet, that is not what happened. In fact, just the opposite occurred. Not only did the market not tank, we have experienced a 10% rally in the SPX in a little more than a month since the election. But, do they question why they got it so wrong with their fundamental perspective of the market? I think not. They simply move on to the next "shiny thing" that catches their attention and claim that it will have the next affect upon the market.
What is even more amazing is that everyone is now touting how good Trump's policies are for the market. But, what changed? Did his policies change? I don't think so. The only thing that changed was that price "unexpectedly" went up. So, the same policies for which they were certain would cause a "crash" are now supposedly good for the market?
I think I have finally figured out the reason that the market rallied rather than crashed. I mean, it certainly could not be that everyone simply got this call wrong?
What I finally came to realize was that Donald Trump announced that he was installing a new Plunge Protection Team with his new administration in a very subtle way. Yes, you heard me right. I am sure many of you missed it. It was not a direct announcement you see. I can assure you that Mr. Trump is quite a shrewd businessman, and would never announce this outright. But, I can also assure you that a new Plunge Protection Team was set up the night he got elected, and they began buying market futures, the stock indices, and individual stocks within minutes of his announced win. And, this is what has caused our strong rally since election night.
Again, Mr. Trump is way too shrewd to announce this to the world. It would be too egregious of a public market manipulation for him to announce that he has just installed a shadow buying entity to prevent market crashes from ever happening again.
So, instead of calling this entity a Plunge Protection Team, he called them his CABINET. It was such a brilliant move. Did you ever wonder why he has so many businessmen and millionaires in his cabinet? Well, wonder no more.
And, for those that could not figure it out to this point in the article, I am being facetious. I do not believe in manipulation that can take the stock market up 200 points within a month, nor do I believe in the Plunge Protection Team. In fact, even though most were expecting the market to crash due to a Trump election, we at Elliottwavetrader.net were expecting this rally to 2300SPX no matter who got elected:
As to the "Plunge Protection Team," I see it as no different than the Tooth Fairy or Peter Pan, and have written about this many times before:
As another example of this perspective, many believe that there is something called the Plunge Protection Team, created as a response to the 1987 crash, which supposedly prevents the market from crashing anymore. And, again, analysts . . . point to this "Team" as the reason they are wrong when they expect a major drop in the markets which does not occur.
If there really is such a team hard at work, with their ever-present finger on the "buy" trigger, then we should not have had any stock market "plunges" since 1987. Rather, the stock market should have only experienced "orderly" declines since that time, and not plunges of 10%, and certainly not over 20%, within a period of a day to a couple of weeks in the same manner as that experienced in 1987. So, the question we now have to look at is if the facts within our markets actually support the existence of such a "Plunge Protection Team" actively at work in protecting us from significant stock market "plunges."
Since 1987, I don't think that anyone can fool themselves into believing that we have not experienced periods of significant volatility. In fact, the following instances are just some of the highlights of volatility since the supposed inception of the Plunge Protection Team:
•February of 2001: Equity markets declined of 22% within seven weeks;
•September of 2001: Equity markets declined 17% within three weeks;
•July of 2002: Equity markets declined 22% within three weeks;
•September of 2008: Equity markets declined 12% within one week;
•October of 2008: Equity markets declined 30% within two weeks;
•November of 2008: Equity markets declined 25% within three weeks;
•February of 2008: Equity markets declined 23% within three weeks.
•May of 2010: Equity markets experienced a "Flash Crash." Specifically, the market started out the day down over 30 points in the S&P500 and proceeded to lose another 70 points within minutes. That is a loss of 9% in one day, but the market did manage to close down only 3.1% in one day!
•July of 2011: Equity markets declined 18% within two weeks
•August 2015: Equity markets decline 11% within one week
•January 2016: Equity markets decline 13% within three weeks
Based upon these facts, you can even argue that significant stock market "plunges" have become more common events since the advent of the Plunge Protection Team, especially since we have experienced more significant "plunges" within the 20 years after the supposed creation of the "Team" than in the 20 year period before.
So, no, I have no belief in a Plunge Protection Team. But, I believe in something else that drives the market which one cannot see with their naked eye: market sentiment. And, this is a much more powerful driving force in the market than anyone truly recognizes.
In fact, as the market was supposedly "crashing" back in February of 2016, our market sentiment analysis was pointing to a rally that was pointing us up to the 2300SPX region. And, yes, we were saying this when most everyone was certain the market was crashing, as we were in the 1800's in the SPX at that time. Moreover, back in July of 2016, I reiterated on Seeking Alpha that we are still on target to rally to 2300 in 2016, on our way to much higher levels in 2017.
One has to realize that being on the correct side of price often means you will have to take a contrarian stance. But, a contrarian stance is only called for when the market is at an extreme. And, I do not see the euphoria yet which would suggest the stock market is at a major extreme which would support a long term top. With as many disbelievers as we still have sitting on the sidelines, it is still likely going to take the market over 2500SPX before we see any evidence of needing to take a contrarian perspective in the bigger sense for the equity markets.
So, there is likely no crash ahead, especially not with the new Trump cabinet . . . er . . . Plunge Protection Team on the job.
Price Pattern Sentiment Indications and Upcoming Expectations
The stock market happens to be very simple at this point in time. As long as the 2205-2240SPX region holds as support, we look for a break out over 2230SPX to point us to our next higher target region of 2400-2440 before the next larger consolidation takes hold. It would take a break of 2160SPX to turn me bearish, but I see that possibly as highly unlikely at this point in time.
For years, our target at Elliottwavetrader.net has been 2537-2611 for the SPX, with a lower probability we could see a blow off top as high as 2800SPX before we see a 15-20% correction. And, it would also seem that the "ideal" target region will not be struck until the end of 2017, or the first quarter of 2018. I do not see anything at this time to change our expectation.
Disclosure: I am/we are long IWM AND VARIOUS INDIVIDUAL STOCKS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.