What follows is an excerpt from yesterday's Market Update, sent to subscribers, discussing the reasons the S&P was going to accelerate in the days ahead. To become a client of Zenolytics Turning Points or to learn more click here.
The markets have moved through another period where the bears had an opportunity to seize some semblance of control. Once again, they have failed miserably in the first two days of trading in the new month.
These type of failures by the bearish camp around key spots have served as signals that have been worth their weight in gold since the March lows. This time has a high probability of being much the same.
To put it simply, the bears had a window in time coming into August as the markets were up against resistance to turn the bulls around. It's not, however, just the failure of the bearish camp that's important, it's the manner in which the markets are choosing to proceed.
Let's look at the chart for the S&P in order to better understand the importance of the path of progress:
This is the only chart we need to review tonight as it tells an investor everything they need to know. The nature of the movement in the S&P to start this week here is astounding on so many levels:
1. Notice the calm, deliberate manner the market just busted out of the resistance zone it has struggled with over the past couple of months. This is a massive continuation pattern/signal, suggesting a ton of accumulation beneath the surface.
2. The S&P closed at 3306 today. The lack of volatility while piercing a round number is also a signal, especially as we are so close to new all-time highs. Round numbers on major averages attract investor attention. That attention normally brings in both buyers AND sellers. In this case, it looks like only buyers, with very light selling. Another continuation pattern.
3. The daily range is seeing compression during the ascent, as witnessed during the past two trading days. Another continuation signal.
What makes this pattern so attractive from a trading perspective is that we have the S&P cornered here from a behavioral perspective. We know that this low volatility ascent should culminate in either further low volatility upside OR an expansion of volatility on the upside to quickly reach the 3500-3600 level, which I outlined as an upside target for the S&P by August 15th some weeks ago.
Should the S&P suffer a range expansion on the downside, then we immediately know that something is wrong, allowing us to hit the eject button with minimal overall damage. It's a very binary equation from here, making the trade a relatively simple one from a management perspective.
To view the entirety of this weekend's note, you can subscribe by clicking here.
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