The following is an excerpt from the March 5, 2013 blog for Decision Point subscribers.
The big news today is that the DJIA closed on an all-time high, moving past the high from October 2007. The SPX, like the DJIA, opened higher and then spent the rest of the day digesting the move.
STOCKS: Based upon a 12/10/2012 Thrust/Trend Model BUY signal, our current intermediate-term market posture for the S&P 500 is bullish. The Trend Model, which informs our long-term outlook, is on a BUY signal as of 12/13/2012, so our long-term posture is bullish.
Price tapped the top of the rising trend channel and was held there. Connecting last week's low with the December low, an intermediate-term ascending wedge is formed which is bearish. The PMO is nearing a positive crossover its EMA and today. Volume expanded, which is bullish, but it is still below average, which detracts from the bullish picture.
The Dow daily bar chart also has a bearish ascending wedge pattern, but today price broke out above it. If the Dow is an index leader, the SPX could follow suit and break out of its ascending wedge.
Even more significant for the Dow, price during this bull market broke out of a long-term ascending wedge on the monthly chart. A bullish resolution to a bearish pattern is very positive.
The SPX is nearing its all-time high and is just under 45 points or a 2% move away. A breakout from the ascending wedge inside the rising trend channel is occurring this week. If price were to test the top of the channel, it would definitely put it above the all-time high.
Conclusion: The market has had two pullbacks since the November low. Neither was that deep despite very overbought conditions overall. Price has been influenced most certainly by the Fed. The liquidity provided by the Fed has to go somewhere and much of it is going into the market, pushing it higher in spite of overbought price conditions. There isn't any sign that the brakes are or will be applied regarding stimulus. So taking that into account and adding it to breakouts on the weekly and monthly charts, there is no reason to believe price can't move higher. However, given there is a new ascending wedge formation on the SPX daily chart combined with short-term indicator climaxes that could be read as a sign of price exhaustion... we can't throw caution to the wind. Keep in mind that, even if climactic readings turn out to be initiations to higher prices, normally some kind of digestion (short-term pullback or consolidation) will take place.
Technical analysis is a windsock, not a crystal ball.
