In last week's technical update entitled “A Sellable Rally” I stated:
“As shown in the chart below, the recent market ‘sell-off' exhausted the “sellers” in the market on a very short-term basis. This ‘oversold' condition (yellow highlights) provides the catalyst necessary for a reflexive bounce in the market.”
Click on picture to enlarge
Any rally that occurs over the next few days from the current oversold condition should be used as a “sellable rally” to rebalance portfolios and related risk.”
I have updated last week's chart, below, to show the “sellable rally” and a few other related points.
Click on picture to enlarge
This short-term analysis suggests, especially when combined with the ongoing deterioration of internal measures, that rallies remain useful opportunities to rebalance portfolio risk as discussed last week.
“[Stocktrader's Almanac stated] ‘Additional technical concerns can be seen in our latest interpretation of the Three Peaks and a Domed House Top Pattern we have been tracking. If it plays out, my ‘count' suggests further downside potential exists. While we are about halfway to the long averted 10% correction we are not expecting a bear market to ensue at this juncture. However, there is no rush to jump back into the equity long side at this time.
The first nine days of August are notoriously weak as are the last few days of the month as summer break winds to a close. Mid-month is stronger. After some choppy trading over the next few months and a strong potential for the first 10% correction in the S&P 500 in 4 years, we expect the market to rally to slightly higher highs by year end and perhaps into Q1 2016 after which we become more concerned for greater downside market action.'
The last sentence is something I discussed back in 2014. As I suggested then, the current bull market was likely to continue through 2015 based on statistical and historical analysis and trends. However, 2016 would likely not turn out well for those with a permanently bullish bias.
As I continue to reiterate, the market has NOT VIOLATED any of its current bullish trends – YET! However, the likelihood that it will has risen significantly. This is why I continue to reiterate a regular program of raising cash, reducing laggards, and trimming back on winners.”
