New Highs Coming to a Theater Near You – Soon!
Since advancing sharply off the February 2 lows of last week, the market – as measured by the S&P 500 – hit its first line of resistance – the 2,062.50 price octave. As a result, we saw the market rally stall-out today. If the market punches through that resistance level early next week – which I think likely – we should be looking at a rapid sprint back into new high territory for the bulk of the popular averages. On the other hand, if the market hesitates here for a few days – that is, we see a pullback to retest this week’s lows – that would not alter my expectations regarding new highs in the popular averages – it would only delay – but not eliminate – that push to new highs.
The chart of the New York Composite Index ($NYA) at left depicts an index within the pattern boundaries of a “symmetrical triangle.” My expectations are that we will see an upside breakout of that triangle very shortly. A breakout is often followed by a pullback to test that breakout before the push higher resumes. That would imply some volatile market action in the coming weeks – both up and down – but with an upside bias…
The Dow Jones Industrials – like the S&P 500 – would appear to be on the cusp of an upside breakout back into new high ground. The next price octave above 17,500 occurs at 18,750 and could be our next area of resistance. Dow 20,000 may have seen like a pipe-dream only just a few years ago but I think once we clear 18,750 it is very plausible indeed. With the Dow just under 18,000 at present, a push to 20,000 from here would be a move of roughly 10% - not that much these days and very do-able in my book. The 1 X 1 angular structure I have drawn on the chart will likely contain the advance even as the Dow pushes the new high envelope.
Bonds have sold off fairly precipitously this week – indeed, this week’s slide has been one of the steepest in years. Bond prices had gotten well over-extended. Moreover, a 238.8 TD low-low cycle I have made frequent reference to in the past would have appeared to have inverted this go-around and coincided with the late January high. A 1.236 expansion in that cycle would therefore lead to a minimum expectation for the next important bond market low in the vicinity of March 5 – a month from now.
The three highs shown on the chart are characterized by a 0.382 / 0.618 fibonacci ratio spacing. Price is now back below the all-important 1,250 price octave. We should see a snap-back to that level very shortly and then – after some back-and-fill – a resumption in the rally. As a caution, though, this recent runup is part-and-parcel of a longer term bear trend.
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