Nonetheless I was much cheered to read this, and watch the hugely bullish comments on twitter. It seems likely that complacency about equities has now reached even beyond the high levels achieved at the 2010 and 2011 tops, which is really very impressive. Any charts or comments I post on twitter suggesting that this market might retrace anyway soon are losing me followers and that's just as it should be here.
Of course massive complacency of itself isn't enough to signal an imminent top. I posted a checklist on twitter last night that covered a few more important things that I like to see and we have them all here now:
There were ten previous examples of these since the start of 2011 and the results from those were as follows:
- The following days all opened flat or with a gap up of one point only.
- On three of the days after the move up was entirely retraced the next day
- On four of the days after the move was sideways to max down 4 handles
- On the other three of the days after there was a green close of 5 points or more
Looking just at this last group of green closes on the day after a strongly green FOMC day:
- All three were within three days before making a major high followed by a retracement of more than 10%. This group includes all three such retracements since the start of 2011
- On two of those days the open was the low of the day
- On the third day there was an intraday decline of only 4 points below the open.
The takeaway here is that if we see a decent green day today then that will be another strong topping signal, so it's encouraging that we still have two open SPX wedge targets at 1965 to shoot for today.
I'm leaning long today, with a target at 1965 and an expectation that any early dip today may be either modest or absent altogether. I'm ideally looking for a close at 1961 or higher, though any green close will do fine. If we see a strong intraday decline today we should either close fairly flat or see the whole of yesterday's decline wiped out. This erasure of the previous day's move is a strong theme with the largest example among these ten being a 53 point rise followed by a 52 point fall, so if a significant decline develops then the obvious closing target is 1942 SPX.
Don't get me wrong here. It could be different this time. SPX could break up. The Fed may know what they're doing. Santa Claus and the Easter Bunny could be real. I'm just calling the odds on the assumption that we are not in a new paradigm. If my primary rising channel breaks up hard I'll adjust my expectations accordingly. Until we see that though, this looks very like the usual period when the sheep line up to be sheared just before a decent move down.