Dow Index Tags 20k And SPX Hits 2300…What Does It Mean?

Tuesday, January 31, 2017

financial forecast

Why did the stock market rally after the election victory of President Trump?  Do not expect to see increased earnings growth in 2017 and 2018.  This market is now overvalued by all metrics! There are no sound fundamentals that are supporting these markets going higher so tread lightly.

My number one priority is preservation of capital. My number two priority is making huge profits with swing trades using ATP’s Momentum Reversal Method.  I have been making anywhere from 5% to 74% in short term swing trades. The old days of buying and holding are over now due to the new structure of all the financial markets and program trading. For the entire month of January, I have been writing that the excessive optimism was a warning sign that this parabolic run was unsustainable!

On January 24th, 2017, the SPX peaked to a new high of 2300 and closed negatively on Monday, January 30th, 2017. This created the formation of an "island reversal".

An island reversal is a candlestick chart pattern in which there is a gap on both sides of the candle. Island reversals frequently show up after a trending move is in its’ final stages. An “island reversal” gets its’ name from the fact that the candlestick appears to be all alone as if it was an island to and off itself.  A key sign of a valid island reversal is an increase of volume on both the first gap and then the subsequent gap in the opposite direction. An island reversal formation is attributed to news driven events that occurred over this past weekend and in the pre-market hours of SPX trading. (Info courtesy of TradingSim)

Exhaustion Gaps signal the end of a move. These gaps are associated with a rapid, straight-line advance or decline. A reversal day can easily help to differentiate between the measuring gap and the exhaustion gap. When it is formed at the top with heavy volume, there is significant chance that the market is exhausted and the prevailing short term trend has changed.

The Small-Cap Russell 2000 Index experienced the worst of the selling pressure of all U.S. indices on Monday, January 30th, 2017. It closed below its 50-day moving average for the first time since the presidential election. Similar losses of momentum have led to negative returns going forward.

Another Way Of Measuring The Trend

The $SPXA50R measures the percentage of stocks in the SPX that are above the 50-day moving average. When the indicator declines below 75. (chart below), that is a sign of a downtrend. I would interpret this chart as being bearish.

As one can see in the chart below, I circled the extremes and currently they are informing us of a pending correction. The higher the ratio, the more bets that traders will have on the indexes rising, however, they are always on the wrong side of the market.

Is This The Point Of No Return?

The election of Donald J. Trump was perhaps the single most galvanizing moment for both political parties in modern American history!  Any single actions made by President Trump has caused protests to ignite throughout the nation, within 24 hours.  On Friday, January 27th, 2017, President Trump signed an executive order that banned refugees from Syria indefinitely and placed a 120 day ban on travel to the United States for citizens of Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen.  The markets responded negatively to this breaking news.

Being on the right side of all the financial markets are discussed in my early morning daily videos which updates you where you need to be in these markets to take the opportunities that are presented. Today, there are unique trading setups in which you can make HUGE profits in.

Be prepared and profit from this years uncertainty and volatility.

Visit us at: www.technicaltraders.com

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Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several financial hubs like MoneyShow.com.