Good And Bad News For The Bears

Unless you trade out of a cave then you already know that the S&P’s 1600 ceiling was effectively smashed today. It’s doing the gap & camp near 1611 right now but the day ain’t over yet. Now if want to spend a lot of time regurgitating what already happened then I suggest you go look elsewhere. We stainless steel rats for one prefer to look forward as that’s where our edge is. So in that spirit let’s zoom out a little and take stock as to where we are:

Looking at our monthly panel what sticks out is that we may be in the process of painting a seventh month higher. Obviously May is still young but what we do know is that six consecutive months are already in the bag. Many intrepid bears have attempted to pick a top here and once more received a thrashing with the bad end of the stick:

Ouch – that’s what I call a perfect formula for a short squeeze. A lot of folks felt it in the groin area this morning and it’ll leave a mark for sure. So let’s talk about what all this means from a purely statistical perspective. I ran into some interesting numbers produced by Ryan Detrick who’s a CMT (cheeky monkey technician) over at Schaeffer’s. Basically in a nutshell:

• Since 1972 six higher closes only have occurred 12 times.
• Near term there’s a slight positive edge but obviously a medium term correction is probably on the horizon.
• Long term there is a definite positive edge in being long, in particular six to 12 months later.
• Incredibly after a six month rally the SPX is higher 11 out of 12 times a year later.

Read that last one again: That’s right – after the 12 occurrences since 1972 the SPX closed higher 11 times one year later. Now let’s look at another goodie I dug up just now:

That’s my long term P&F chart of the SPX. And today it triggered an ascending triple top breakout, which now bestows us with a new price objective of 1800. Yup, you read that right. Obviously we’re probably not going to make a b-line up to that and I expect quite a few gyrations in between. However, given the statistics there’s a decent change we may scrape it a year from now.

So if that’s the bad news for the bears – what’s the good news? Well, I don’t know how May will close but if it does close higher as well then the odds for a correction should be pretty decent:

Statistically speaking (again) a correction in June has pretty high odds, especially IF May closes in the green. So there you have it, of course we’ll monitor our charts all months and if I see signs of a reversal (e.g. distribution, divergences, stalling momentum, etc.) I’ll be sure to post it here.

Before I close shop for the week let’s catch up with a few more charts. Here’s the USD/JPY which is pushing into a daily NLBL, and that ought to put up a bit of resistance. However, the monthly is what I have been pointing at (also see my last weekend update) – it’s in the process of breaching its 100-month SMA and there’s nothing but air above. And if it drops it’ll enjoy weekly support near 96.125. This is one of those LT setups you don’t want to miss out on.

GBP/CHF – I was harping about that one earlier in the week and suggested that a drop into its 100-week SMA and that NLBL was a good buy. Well, it paid off as it’s recovering and if it clears that 25-week SMA then we should be good to go.

Let’s wrap things up with setup on the commodities side – sugar. Nice inside day candle plus it’s happening right below the 25-day SMA. Great inflection point and given all the commotion preceding it I think we may have a big move coming.

And that would be it for me today. We’ve had another fun week and it’s time to crack open a bottle of your most coveted brew. May I suggest a nice glass of Paulaner – in the U.S. you may be able to grab a few of those bad boys at Whole Foods for a bit over two bucks. Best money you’ll ever spend. I raise my glass to all you cheeky monkey technicians. Prost!! 🙂

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Cheers,