"There is no such thing as chance or accident; the words merely signify our ignorance of some real and immediate cause." - Adam Clarke
1,361.23 (Friday) vs. 1,361.22 (May 2nd 2011 Close - previous high). Over the past two weeks the 'Jo's' have been discussing the massive inflection point at which the market currently sits. But really, how massive is this point? Is this something which should change long-term stance or, is this just another short-term "Flash-in-the-pan," if you will? Maybe it's only another traders' paradise. But what if it's something more substantial, dependable or even; should I dare say… trustworthy?
As investors yearn for clarity to determine stance (make decisions for longer than a few months without concern regarding massive drawdowns?), they really are attempting to establish the markets health and stability. This, if unsure about by what method to do such, can be a very daunting task. But yet, what's their alternative; daily stress due to news-flow and headline risk? Believe it or not, this determination is not an insurmountable task.
In a nutshell, finding the potential duration of the next trend is based on two factors; previous trends and the quality of the move. Both of which are not allusive and rather straightforward - almost simple, if you will. The two determining factors you've seen us discuss a multitude of times; yet, rarely together and for this type of discovery. The first (previous trends) requires a longer-term view of the market; one you haven't seen us pen since the September 26th MCoJ - The Monthly Chart. By evaluating this chart investors can determine, with all likelihood, that if 1,350 gives way, 1,500 is the next logical resistance. As far as longevity, that's not impressive. Conversely, this action would push the index above converging resistance.
The second (quality of the move) is contingent on looking further - beyond the broader index itself. Some turn solely to volume for sign of strength. Typically, this is not enough - never bet the farm on one cow. As you can plainly see above, this has been decreasing as the market head higher for nearly two years. Hence, investors should turn to the secondary indices (BKX & DJTA). In doing so, strength measurements come from internal influence scrutiny; not only through external factors.
Without our technical influence via verbiage (the whole… a picture is worth a 1,000 words thing), evaluate the next two charts (The BKX - Phlx Bank Index - & the DJTA - Dow Transports - Monthly).
Adding it all together…
If the SPX breaks 1,350 there seems to be a 10-12% move going forward. This should put the BKX above its downtrend and next horizontal resistance point. While at the same time, the DJTA should be at new all-time highs. After which is anyone's guess at this point. On the other hand, this still does not supersede the Mega long-term Secular (5-20 years) trend.
On a Side Note: In April we will be speaking at the Annual MTA Symposium (Market Technician Association) at Pier Sixty (Chelsea Piers) in Manhattan. We hope to see many of our dedicated readers, especially our NY based. Typically this event costs $750 to attend. However, our readers (if putting "TAM" in the 'Where did you hear about this?' spot) can receive a $200 discount on registration. Click Here for Discount Registration.
And….. Happy Birthday to my 13-year old son, Dellinger.
We hope this helps.