After many months of twiddling our thumbs and watching markets going nowhere fast, we have finally seen some movement at the station.
I have been just as confused as everyone else about which way the S&P 500 would break out of the stalemate. I favoured a move to the downside, so, of course, it was a rally that ensued.
I believe much of the buying has been short covering by leveraged funds that have been carrying a large short position, according to the Commitment of Traders data.
We will know more when this week’s data is released on Friday evening after US markets close.
If that is the case, there is a chance that the rally doesn’t have legs and another bout of selling could be around the corner.
The key zone in the S&P 500 that the market has to navigate is between 4,500–4,650 (currently 4,417).
But the weekly trend is definitely up, and we will need to see a sharp fall before the short-term picture looks bearish again.
We aren’t far from seeing the long-term trend turn back up in the S&P 500, which would increase the bullish tone even further.
After two years in the wilderness, I have my fingers and toes crossed that the market is ready to start rallying again, but there are still a few hurdles to overcome before I tell members of my trading services to move back to a 100% long position.
Check out my latest analysis of the S&P 500 by clicking the video above.
Until next week,
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Murray Dawes,
Editor, Money Weekend
