If January usually sets the stage for the rest of the year, then I’m not impressed with what we’ve seen so far.
As I’ve mentioned in previous articles lately, after such a good bull run one expects things to get more wild and woolly, if history is any guide. But this week is crucial because the market has got itself into an inflection point. What happens next on this chart will tell you which way things are going next…
Here’s a chart of the S+P 500 going back three years, and I’ve drawn those horizontal blue lines on there:
Stocks and the overall stock market ‘walk up the stairs’ in a bull market. These ‘boxes’ piling up are classic action. But when the boxes go into reverse and we start etching out the other side of this ‘pyramid’ shape, we can see that we may be moving into a bear market.
The S+P is now bumping along the bottom of that box around the psychologically important 2,000 mark (it just dipped below it). In order to keep the party rolling and those boxes piling higher, the S+P must not go any lower this week, and it must start pushing higher, and higher still- above 2,090. But if it continues down this week and finishes the week lower, then this will look more and more like a market top has been formed, and that flattening out of the chart is the usual prelude to a bear market.
Best
Jim
The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com
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