Jeff Clark's Market Minute

It’s a Breakout! But…

The bulls are back in charge.

The S&P 500 broke out to the upside of its five-week-long trading range yesterday. The path of least resistance is now higher. But, before we get too excited, throw caution to the wind, and shove all of our money into the market, there’s something to consider.

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Take a look at this updated chart of the S&P 500…

The S&P was stuck inside a 90-point trading range throughout all of August. If we add 90 points to the resistance line of the range, we get an upside target of about 3020 or so for this move. 

Heck, after yesterday’s big pop higher, we’re already halfway to the target. So, unless you jumped into position prior to the breakout, the risk/reward setup for buying stocks today isn’t quite as attractive.

And, we’re already getting some modestly overbought conditions on some important technical indicators. For example, the CBOE Put/Call ratio closed yesterday at 0.82. You may recall we’ve often pointed to high readings in the CBOE Put/Call ratio as a reason to lean slightly bullish on stocks. Yesterday’s extremely low level might be a reason to be slightly cautious.

Also, the McClellan Oscillators for the NYSE and NASDAQ (NYMO and NAMO) closed yesterday just below their upper Bollinger Bands (BBs). It won’t take much of a continued stock market rally today and/or Monday to push these indicators above their upper BBs. This often happens within just a couple of days of the broad stock market reaching at least a short-term top.

So, yes… the market has broken to the upside of its recent trading range. It is likely headed higher towards the 3020 target. But, traders probably shouldn’t count on much more upside than that. Several indicators are already nearing extreme levels that often warn of an impending decline.

This isn’t the start of a new, intermediate-term bullish phase. Rather, it’s just a quick move higher that will likely fizzle out within just a few days.

Best regards and good trading,

Jeff Clark

P.S. If you’ve been reading Market Minute this week, you’ll know I cautioned readers Wednesday that the gold sector looked vulnerable to a decline. And that the chart of GDX was the most vulnerable looking one in the stock market right now.

With GDX falling 5% yesterday, anyone who took a short bet is glad they did. But, the majority of folks simply buy and hold gold stocks, hoping they’ll keep running higher… when really, there’s a simple technique that could potentially earn you 10x more money in the gold market without touching gold stocks.

I’ve put together a presentation with all the details. Click here to learn about this technique.

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Where do you see gold heading from here? How have you been trading it?

Let us know, along with any other trading stories, questions, or comments at [email protected].

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Jeff Clark's Market Minute Archives

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