OVERALL DIGEST
As of today, after the market close on Friday, S&P 500 is up +18.35% year-to-date.
When S&P 500 is up around 20% for the year it is generally considered a ‘good’ year; if it’s up 25% or more it is considered a ‘great’ year. So, for me, as a long-term investor in this market, I praise for a year like this with very low volatility the entire year so far.
S&P 500 has not suffered an official correction this year (10% or more) as the biggest decline the index had encountered was –6% decline, just recently, from September 2nd (SPY at 454.04) to October 4th (426.39)–it was about a month long short-term correction.
As of last Friday, however, market bounced back, and SPY is currently at 445.87 which is only 1.71% away from the September 2nd all-time high peak.
I think the market might be transitioning into an end-of-the-year rally phase, let’s take a look at few charts.
BULLISH DIVERGENCE CASE
As you can see in the chart below, at “2,” we have the oscillator higher low prints while the price established the lower low (dotted blue line)–this is what we call a bullish divergence which signifies the possible reversal. This was when the market bottomed when SPY printed 427ish on October 4th.
After that market made several up-gaps to igniting the price back up.
What’s most important from the recent price action is, at “1,” not only market did see the three-day thrust to the upside but it closed above the previous swing low (red horizontal red) thus nullifying the short-term downtrend–now we have the higher high for the first time since the decline.
This is the first affirmation from the market letting us know that the market has safely recovering from the recent decline (the 6% decline).
LONG-TERM RISING PIVOT CASE
Chart you see below is a long-term chart going back to September-November of 2020.
Take a look at the dotted-blue lines with red arrows where the price perfectly respects the levels as a pivot (pivot means old resistance is possible new support in this case). This is very important, because I see too many investors pay too close of attention in the short-term fluctuations hence missing out on the big picture. If you get too intimate with the short-term fluctuations, market knows way to manipulate you and make your life miserable.
As we zoom out in this chart, we can all clear see that the potential level of support in “October” right on that rising pivot.
This is not a mistake, not a coincidence, not a random occurrence that this happens over and over again. Feel free to pull out your own chart and see how many of these rising pivots you can find in your favorite tickers and indices.
CLOSING THOUGHTS
When it comes to the market, no one can clearly see the future.
But what we can do is to ascertain possible levels as we understand the primary trend. That’s what will guide us in this journey of investing in the stock market.
I see too many times, that so many people lose sight and lose aim, because they let this market bully them around, churn them around and toss them out leaving them behind when any kind of short-term corrections happen (like the one we saw just recently).
I also see too many people constantly looking for the ‘top‘ or ‘next big crash‘ listening to the finger-mongers missing out big rallies–“More money has been lost by investors trying to prepare for the corrections than the corrections themselves.”
Looking at the price action last few weeks and the overall sentiment of the market, I can’t stop to wonder if the market is preparing for the next phase, the end-of-the-year rally phase.
The way I see it, the long-term trend is up and healthy.
The more people are fearful of this market and the more people flock into the ‘market is up too much‘ camp, the higher the market will go.
Remember, this market can and will and able to perform the unthinkable and laws of physics do not apply here.
