Early Market Analysis Sends Clear Message : Consolidation Underway

Nine days of trading have elapse since the start of the new year and there has been one clear message, CONSOLIDATION.  Stocks delivered a strong rally after the U.S. elections in November and stocks are talking a needed rest as we move into 2017.  Here is a look at the S&P 500 Index since November.snp50090d011317

What should be obvious is the amount of trading that took place in the upper range of the consolidation.  The one dip into the lower half of the range was short lived and the last week of trading delivered consistent action in the upper portion.  On the whole this is bullish.  Combined with sentiment based on actual investments, where the Rydex Cashflow Index shows net money moving into bearish funds (a contrarian indicator), and you have another ingredient that suggests U.S. stocks are more likely to move out of this trading range to the upside.

More bullish evidence comes from the Nasdaq Composite Index, which has already move into new high territory as shown in the chart below.

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For more strong price action from the Nasdaq take a look at the Point & Figure (PnF) chart below.

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PnF charts consist of columns of X’ and O’s which show prices moving up or down respectively.  Numbers and letters in the columns represent months of the year starting with 1 for January.  In the chart above a price breakout around 5,400 took place back in December.

International developed market stocks, as measured by the EAFE index, have a bit more work until they clear intermediate-term resistance but at least they have cleared short-term resistance.

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The EMF emerging market index is in a similar situation.

Despite all the calls for a U.S. stock market correction after a strong Q4 rally, not only do U.S. stocks look stronger then international stocks they actually look poised to resist a correction that would take them much lower then trading since the start of 2017.

There is plenty of reason to expect the consolidation period to continue, and short-term volatility may creep into stock market trading, but underlying action suggests stocks are likely to move higher as we move further into Q1.

Posted in Technical Analysis, U.S. Stock Market.

Brian Dightman