The stock market just broke out to the upside.

The S&P 500 gapped higher yesterday. It popped above its 50-day moving average line, and rallied all the way up to 2701 before pulling back a bit and closing at 2698.

It was an impressive move. And it was enough to paint a bullish picture on the chart. Take a look…

The S&P has broken out to the upside of the consolidating triangle pattern (the red lines) I’ve been showing you recently. From a purely technical perspective, that’s bullish.

The upside potential of this pattern is 100 points. So, if we take the breakout point of 2675 and add 100 points to it, we get an upside target of 2775 – which just about matches the March high.

Traders SHOULD be bullish here. But there’s a problem.

Actually, there are two problems…

First off, just about everybody seems to have turned bullish on this move. On CNBC yesterday there were several talking heads explaining what I just showed you. They all talked about how the market had broken out of a triangle pattern. And they explained how that action should lead to even more upside in the days ahead.

I probably should be pleased that so many other folks agree with my opinion. But over the years I’ve learned that when everyone else agrees with me, I’m usually wrong. So, I’m thinking this “breakout” move on the S&P 500 might be more of a “fakeout.”

The market may be suckering traders into long positions right here in anticipation of more upside, only to quickly reverse the breakout and head back down.

Here’s the bigger problem… The CBOE Volatility Index (VIX) is on the verge of a sell signal. Look at this chart…

The Volatility Index (VIX) closed yesterday below its lower Bollinger Band. When it closes back inside the bands, the VIX will generate a sell signal. The last time this happened, the S&P 500 lost 100 points in about one week.

Of course, since the sell signal won’t occur until the VIX closes back inside the Bollinger Bands, it is possible the stock market could rally higher if the VIX continues to fall from here. But that’s unlikely. The VIX rarely spends more than two consecutive days outside of its Bollinger Bands.

So, we’re likely to get a sell signal today or tomorrow. That should lead to lower stock prices next week.

Best regards and good trading,

Jeff Clark

P.S. In 2017, you could almost always count on higher prices ahead. But the volatility this year has shaken long-term investors, making them question every move the market makes…

Traders, however, couldn’t be more excited. Like I explained in last night’s online training event, the rubber band that stretched to the upside all last year is now snapping back. We’re entering the most profitable time to be a trader in close to 10 years… and I have the perfect tool for trading in this environment.

If you missed last night’s event, don’t worry. I prepared another video that goes into all the details. Check it out here.

Reader Mailbag

Today, some notes on the recent energy sector essays, including yesterday’s “Don’t Buy Oil Stocks Until You Read This”

Hi Jeff. My dad and I subscribe to your research and you’ve had some great insights over the last 12 months. But your take on oil has been consistently off.  You often recommend selling due to the technicals for XLE which is not representative of the overall market. Today you say that the oil stocks have been flat since you issued the warning 2 weeks ago. That’s a very myopic view.

DVN, APC, CLR and PDX are all large-cap, solid energy & production companies. Not speculative high-beta names. They are ALL up 9-20% in the last 2 weeks. And I believe they will all run higher as earnings estimates and P/E multiples catch up w/ rising commodity prices and improvements in efficiency. Time will tell who is right, but to date, your energy predictions have been pretty dismal. I hope you’ll look beyond major integrated companies (Exxon/Chevron/XLE) and see there’s a lot of room for the pure play E&P and oil service companies to run.

I know you’re a TA guy, but energy is not easily managed by technicals. If you’re going to play in the energy space, I’d recommend you find some people who understand the supply/demand and E&P fundamentals to help guide your predictions. They used to call it channel checks. It seems to be a lost art.

– Steve

How have you played the energy sector these past few weeks? Will it keep rising, or tank? Write us right here.