In our weekend report published in our Trading Room last Saturday May 27, I noted that I was unsure whether we were heading directly to 2500SPX, or if we would see one more pullback before that rally takes hold:
“This past week, the market moved into this resistance region, and how it reacts from this region will tell us if we are taking the direct route to 2500SPX or if we revisit the 2330SPX region before the run to 2500SPX begins in earnest. Currently, support resides in the 2400SPX region. Should we see a strong drop below 2400SPX, it opens a trap door which can allow us to revisit the 2330SPX region and the drop can be fast and furious.
However, if the market is able to continue to melt up through this resistance region, and follow through strongly over 2428SPX, then it signals we are rallying to 2500SPX sooner rather than later. . .”
Well, the price clearly broke through our resistance, and it seems we are on our way to 2500SPX.
About a year and a half ago, one would be hard pressed to find many bulls in the market, as the market was predominantly bearish. Back on February 10, 2016, bearish sentiment, according to the AAII Investor Sentiment Survey, was at one of its highest readings, hitting 48.7% (with only 24% responding as bullish), whereas it has a historical average of 30.5% bears and over 40% bulls. The February 10th measurements are considered to be relatively extreme bearish numbers.
Since that time, the market has struck a significant low at the peak of market bearishness, and began the rally towards our long-term target between 2537-2611SPX. However, this means that those who were bearish when the market was striking its major low in February 2016 were “dumb money,” as commonly referred to those who are on the wrong side of the market.
This post was published at GoldSeek on Monday, 5 June 2017.
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