I have repeatedly gone against the grain this year and called for higher US stock market prices when everyone else was calling for the sky to fall. Today, I’m seeing alarming signs of a possible current S&P 500 top.
As for our bullish calls this year, let me briefly revisit them. There was:
- The SSI entry signal on the S&P 500 back in April.
- The post-Brexit rally / Ameribuy call in July.
- The most remarkable trade of the year call in October.
- The Trump rally call in November.
All throughout the year, I cautioned readers against buying too much into the “sky is falling” narrative. So why am I warning of a possible top today? Let’s take a look.
My biggest concern about the ability of the current rally to continue comes from my time-cycles analysis. All year long the time-cycles have been very accurate … and they’re currently signaling a top in January.
As I’ve said many times before, I use time-cycles to know which way the wind is blowing. Just because the winds might be blowing south, doesn’t mean by itself that the stock market can’t keep heading north. There are other reasons, however, to be cautious.
Our “smart-money” sentiment indicator, the commercials commitment of traders report, is also signaling headwinds ahead for the stock market. The smart-money market players have been hedging their bets on this rally most of this year … and they continue to do so today.
Commercial hedgers can be wrong for months at a time (they have a lot more staying power than most of the rest of us) but eventually they tend to be proven right (and collect their winnings accordingly).
Finally, our volume-at-price analysis shows that the S&P 500 has built up a significant amount of overhead volume here at the 2,250 – 2,275 level. It’s not an overwhelming resistance but it is enough to require some extra oomph to break above these levels and I just don’t see where that extra energy is likely to come from.
Let me end by reminding us all that “staying in your winners” is one of the cardinal rules of the TradeStops system. The SSI indicator on the S&P 500 is still solidly in the green zone … and that isn’t to be taken lightly.
But it is most certainly a time to be cautious … and not overreach for more stock market gains. The S&P 500 is up nearly 10% since Trump’s election victory. No one really knows what a Trump presidency is going to look like. I’m not even sure the Donald himself knows.
At a minimum, there is bound to be some turbulence along the way … and my indicators are suggesting that it is probably time to turn on the “fasten your seatbelts” sign.
As my colleague Tom Meyer suggested earlier this week, it’s a good time to make sure your portfolio is ready to weather any storm.
It’s been a great year here at TradeStops. I’m very proud of what we’ve accomplished and very appreciative of your confidence and your business.
I wish you all a happy and prosperous 2017,
