That's why we are long-term BULLISH but short-term BEARISH. As noted by TraderStewie, this is a movie we've seen before, with the S&P making a power-move to the top of the channel, only to find resistance there that turned out not to be futile.
IFF we break out over that channel (for more than a spike), I will be HAPPY to play a new channel higher but PLEASE – let's just make sure we get there first! In this chart of the Equal Weight Index, each company is treated as 0.2% of the S&P to eliminate the distortions of runaway Momentum Stocks.
Of course, it's very hard to quantify where we should be as the Dollar has been diving – all the way from 84.96 in July to 79.06 last week. That's a 5.8% drop in the currency, which is the measuring stick we use to put a PRICE (not a value) on the market. In early July, the S&P was at 1,600 and, wouldn't you know it, 1,760 is EXACTLY 10% over that line (the Must Hold line on our Big Chart).
That's what makes the Fed so important, their stance on QE (announcement tomorrow at 2pm) will determine whether or not the Dollar is bottoming here and, if they are not even LOOSER than they have been, we are likley to see the Dollar move back over 80, most likely to 81, which is a 2.5% move up in the Dollar and, since there is roughly a 2:1 relationship between the Dollar and the indices, we're talking 5% pullbacks but then those pullbacks are likely to be exaggerated as oil and other commodities begin to break down against a stronger Dollar.
As it stands, these are the last few POMO days of the month and the Fed has already blown through over $50Bn in October (out of $45Bn they are supposed to spend on Treasury Purchases!) and has nothing left to contribute…
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