Within the grand illusion that makes up day to day trading in the financial markets, there are few of us who choose to zoom out from the myopic focus of day to day green and red. Instead, a vast majority of investors enjoy taking the path of least resistance that entails maximum information that goes on to create discontinuous analysis lacking any tangible edge.
What is being offered by the markets at any point in time is all the information that is needed to make a decision. A decision that does not necessitate reams of information, constant chatter or an overly-complicated attempt at portraying sophistication. Those who choose to rely on only one side of the information coin will always be in a state of imbalance and dissatisfaction.
With that said, the focus of this posting will be of the technical nature. This is an update to the last "Current State Of The Markets," that without trepidation or an inconclusive agenda set forth a bullish forecast for the markets clearly interpreting what the important market averages were attempting to convey at the time. Now that we have hit and exceeded all of the targets on the upside mentioned in the previous two "Current State" postings, it is time to hit the refresh button.
Just as the winds bristling through the hair of a Chihuahua roaming the streets of Tijuana are subject to dramatic, unpredictable changes, so are the winds that carry price in the financial markets. As such, we are approaching a point in time when the winds of change will subject the markets to a different tone, encompassing all that is dreaded, loathed and bemoaned by investors. That event, of course, being a change in trend or rather, in this case, an interruption in the trend that will serve as a stark reminder that Hoodews and Wollywops of all shapes and sizes still exist in the financial markets.
We begin with a look at the venerable, but at the same time antiquated Dow Jones Industrial Average:
Dow
Important to note with the Dow: The trajectory that was just exceeded goes back roughly 15 years, making it an important trajectory and one that will be taken much more seriously than the market is currently suggesting. I expect that the Dow will make a move back below this trajectory here shortly, beginning a game of ping-pong before deciding if it wants to continue higher or lower.
What gives me the confidence to make such an audacious prediction with respect to the Dow is a question that may be drifting its way around your mind. The S&P 500 is hitting a generational trajectory spanning back multiple decades. This is one of THE key trajectory points for the S&P 500. Here is a look:
S&P 500
Although the markets have experienced a healthy multi-month consolidation before taking on this important point of resistance, the chances of the averages exploding through this point in a dramatic fashion without high levels shenanigans of one creed or another is extremely remote. Therefore, at a minimum, this point right here will become a point of consolidation for the remainder of June, making dramatic increases in long exposure at this point in time a loathsome idea.
I wouldn't dare leave my well regarded readers without icing on their cake. The icing in this case comes with the SOX, a leading index of sorts, as it exerts considerable influence over the rest of technology which in turn trickles down to the rest of the markets. Low and behold the SOX is hitting a key trajectory point at the same time as the S&P & Dow, making for a harmonic rhythm that only a true aficionado of price can appreciate properly. This is the same trajectory that forced me to post this chart back in March. A reliable old bastard, no doubt:
You can see in today's price action that we've already experienced a very subtle hint at the flavor that is to come at this point in our travels. The reversal off the trajectory today is the market whispering that it is indeed paying attention to this important technical area. A show of respect, in other words.
The message here is abundantly clear: If you did not put on your long exposure as the market dictated in early May, then you are late to the party. Best to wait until June is gone before entertaining the idea of increases in long exposure again.
Be well.
