When looking at the US equity markets as a whole, I believe that there is good news and bad news. The good news is that we have seen technical breakouts last month from the S&P 500 and more recently for the Dow Jones Industrials Average. The breakout for the S&P targets a move into the 1980-2000 range, while last week’s breakout in the Dow renders a technical projection closer to 17800-18000. As I am not seeing any major signs of a reversal, I believe that these targets met. It will be the manner of how we reach these levels that has me on the lookout for what could be the bad news. Right now the market has been exploding to the upside and optimism is at high levels and the VIX is signaling complacent market. I am watching the VIX Index very closely because I believe that a move below the June 2014 low (10.73) may be the trigger, which sets the stage for some kind of euphoria to begin setting in, which could culminate in blow off top. So the bottom line is that I am still bullish and think that the market goes higher from here but a pause and a pullback would help alleviate an overbought condition, enabling a more healthy continuation of the bull market. If the market continues to heat up, then the chance of a speculative top rises.
Chart 1: J. Beck Investments’ Dow Jones Industrials Average Technical Outlook.
Chart 2: J. Beck Investments’ S&P 500 Technical Outlook