It's hard to say trend is not bullish: SPX, DJIA and NDX all made new highs intra-week; RUT briefly traded above its early September high before closing lower.
Incredibly, SPY closed between 204.0 and 204.2 every day this week. Moreover, during the past 11 days, the open/close range in SPY has been just 0.13%. There has been limited movement for 2 weeks in a row.
The technical pattern coming into this week suggested that equities were set up for choppy trading, making the risk/reward of entering new longs uninteresting (read the post here). That seems to be validated by this week's trading. The outlook ahead hasn't changed.
By Friday, SPX had closed above its 5-dma 21 days in a row. The only other time it has done so was in 1996. That turned out to be the exact high over the next 3 months.
We looked more closely at this pattern this week. What we discovered is that most often, if SPX made a marginal higher high ahead, it usually gave back all of those gains in the subsequent weeks. The forward results were not impressive (post).
Andrew Kassen reaches a similar conclusion when looking at the ISEE equity call/put ratio, which has closed in extreme bullish territory (above 200) three days in a row (his post is here). In the past, these clusters have been followed by churning and then a move lower. Any gains during the churn have subsequently been given up.
The gains off the October low have resulted in a number of bullish extremes in sentiment surveys. More to the point, retail investors have continued to pour money into equity ETFs and mutual funds. An additional $10.7b was added this week, bringing the total over the last 3 weeks to $35b. The last time fund inflows were this strong was mid-March, a period that preceded choppy trading and the April swoon lower to SPX's 50-dma.
That's not our immediate expectation now. The most likely pattern still remains one where SPX chops or trades lower to its 13-ema (arrows) and then retests its earlier high. This has been the recent pattern after similar persistence above the 5-dma.
This week's stall in SPY also corresponds with it reaching a four month trend line, connecting all the tops since July. This has been resistance before and seems to be now as well. Note the beginning of a loss in RSI momentum. On weakness, the 13-ema at 202 now corresponds to the September high.
202 seems far away given the tiny movements the past two weeks. However, the sharp contraction in volatility this past week triggered a study from Rob Hanna that suggests short term volatility may increase by about 5 times this coming week (post).
Options expire this coming week. In the past, November OpX week has been neutral. There's no strong seasonal bias higher or lower (the data below dates back to 1987).
Our weekly summary table follows.
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