Laying Out Bear Traps
The Bollinger Bands on the S&P are as tight as I’ve ever seen and there is no doubt now that the Daily Cycle has topped. This being Day 37 (of an expected 40 day Cycle) this action is certainly part of a decline down towards a Cycle Low. But the problem (for bears) is that the S&P isn’t dropping in price! I will grant you that the chart is looking a little “toppy” here, but at the same time the bears have unsuccessfully tried to roll this market over for 17 sessions now. You will notice that from a technical and detrended price standpoint this Cycle is well and truly approaching DCL levels.
A divergence between price and technicals here tells me that the S&P is consolidating its massive Cycle gains and is readying for the next leg higher. I don’t see a significant drop as a real possibility here simply because it’s too early in the Investor Cycle and also now fairly late in this Daily Cycle. What we’re more likely to see is a solid 1-3 day drop this week to paint a very convincing breakdown, but that would only serve to trap in the bears. The problem for the shorts is that the Daily Cycle is already deep in its count and it will not support the type of sustained move they’re expecting.
At this point the 50dma should act as comfortable support, so the downside here over the next few session should be a maximum of 30 points. Cycles are about time and this lengthy side-ways consolidation is healing the excesses of this past Cycle rally. Once the selling pressure abates the force of the primary trend should prevail.
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