In the words of the famous Yogi Berra, "it's like deja vu all over again". I'm trying to find new and meaningful clues as to where the U.S. stock market is heading, but little seems to change from day to day. Some of the "beneath the surface" signals point to a potential top here, but the longer-term charts of our major indices are quite bullish, consolidating in a continuation pattern that followed a breakout of a bullish inverse head & shoulders pattern. Continuation patterns generally break in the direction of the prior trend - and that's higher. As a reminder, let's look at a long-term chart of the S&P 500:
There are two sides to every coin and certainly two lines of thinking that relate to the stock market. There's a constant debate on both sides of the action. Most of my price analysis points to higher prices. There's an inverse head & shoulders pattern that follows a solid uptrend in 2013 and 2014. That "measurement" on the July breakout points to 2375-2400 in time. The most recent consolidation from 2120-2190 has occurred after that breakout and is normal behavior - so long as price support at 2120 and neckline support closer to 2100 holds.
The bearish argument suggests that this rally is running out of steam as evidenced by the weekly MACD above that is now falling rapidly. If the S&P 500 does to push to new highs, it's almost certain to do so with a lower MACD reading - a negative divergence. These types of indications, in my experience, tend to lead to further weakness to "reset" the MACD at its zero line while prices tend to fall to test rising 50 period SMAs. That could potentially result in a test of neckline support closer to 2100 as the S&P 500's rising 50 week SMA approaches that level as well. . .
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