Technically Speaking: When Bulls Collide

“Technically Speaking” is a regular Tuesday commentary updating current market trends and highlighting shorter-term investment strategies, risks, and potential opportunities. Please send any comments or questions directly to me via Email, Facebook or Twitter.

Prior to the election last year, I penned an article entitled “2400 or Bust” which discussed the potential for a market “melt-up” at that time. To wit:

“As shown below, the current price action continues to consolidate in a very tight range which will resolve itself in very short order. A breakout to the upside will clear the markets for a further advance. However, while the technicals suggest a move to 2400, it is quite possible it could be much less. Notice in the bottom section of the chart below. Turning the current ‘sell signal’ back into a ‘buy signal’ at such a high level does not give the markets a tremendous amount of runway.”

Of course, since then the market has completed the majority of that advance. I have updated that chart below through Monday’s open.

Despite rising geopolitical tensions in the Middle East, the deployment of the USS Carl Vinson strike group off the coast of the Korean peninsula, or the looming potential of a Government shutdown over a “debt ceiling” fight, nothing seems to concern the markets much.

The market remains in a bullish trend and short-term moving averages continue to provide support against a deeper correction. At the same time, complacency remains high leading to Wall Street pushing estimates ever higher. In fact, you don’t have to go far to find the bullish case now being made for S&P 2700-3000 as per Morgan Stanley:

“The cyclical upturn that began a year ago has less to do with President Trump and more to do with the global business cycle that bottomed in 1Q-2016. Trump simply ‘turbocharged’ the cycle and stoked animal spirits on Wall and Main Street, with tangible effects on the real economy and markets. The title of our year-ahead outlook as CIO for Morgan Stanley Wealth Management on January 1st was ‘Are You Ready for Euphoria?’– based on Sir John Templeton’s four stages of the investment cycle:

‘Bull markets are born in pessimism, grow in skepticism, mature in optimism and die in euphoria.’

The end of the cycle is often the best. Think 1999 or 2006-07. In a low-return world, investors cannot afford to miss it.”