Hitting 4000 with monthly divergence
SPX will likely hit 4000 this week, maybe even Monday night before the market reopens on Tuesday. Although it may be pointless to suggest caution in this wildly bullish market that is defying gravity its prudent to point out the areas of resistance I see. 4000 has been acting as a magnet and once reached will likely generate some profit taking. Price is also coming in to trend line resistance and there is a significant divergence on the monthly RSI not to mention a confluence of fib extensions. I would expect see some sideways to down price action over the next few weeks. I am not expecting a major correction just a pause. Its important to anticipate these pauses especially if you trade options as timing is crucial. A one week pause in price action can complete wipe out all your premium.
With the above in mind I should note that I am very bullish long term. Although there are signs of exuberance everywhere which may lead to some short term pull backs I believe the market will go much higher from here. There is simply too much new money flowing into the market for it to do otherwise. Most people point to the Fed which is definitely a factor but I believe the real story is in the growth of the retail trader. The explosion of new retail accounts is not just a North American or European phenomenon it is global with new accounts being opened by the millions daily in Asia and India. The money coming in is from younger traders who have long time horizons and are not fearful. They understand already that the market over time goes up more than it goes down and with commission free trading they are nimble. I predict a cycle of rotation where money chases momentum for the foreseeable future. If the market lags in one area money will simply come out and move to something new. We have already seen this in the jump from Covid stocks, to large caps and now small caps. It will take something significant for this to change such as global monetary crisis or new strain of Covid that is far more deadly. Neither of which seem likely in the near term.
With the above in mind I should note that I am very bullish long term. Although there are signs of exuberance everywhere which may lead to some short term pull backs I believe the market will go much higher from here. There is simply too much new money flowing into the market for it to do otherwise. Most people point to the Fed which is definitely a factor but I believe the real story is in the growth of the retail trader. The explosion of new retail accounts is not just a North American or European phenomenon it is global with new accounts being opened by the millions daily in Asia and India. The money coming in is from younger traders who have long time horizons and are not fearful. They understand already that the market over time goes up more than it goes down and with commission free trading they are nimble. I predict a cycle of rotation where money chases momentum for the foreseeable future. If the market lags in one area money will simply come out and move to something new. We have already seen this in the jump from Covid stocks, to large caps and now small caps. It will take something significant for this to change such as global monetary crisis or new strain of Covid that is far more deadly. Neither of which seem likely in the near term.
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