FAILED Breakout (For now…)

I could go through a laundry list of pros and cons when evaluating the stock market today, but that’s not necessary today.  Sometimes the market gives us clearly defined risk levels and “signs” that make analysis not easy… but very simple.  Today is one of those days.

The way I see it, if the market is above the horizontal red, dashed line below (which represents the February highs from earlier this year), then I think we have a green light from a trend-following perspective.  However, if the market is below that level, then the breakout to all-time-highs that took place just three weeks ago is a failed breakout until proven otherwise.

There is still time for the market to digest the recent gains, chop sideways, and then perhaps head higher, but we also find ourselves in September, which is the seasonally the worst month of the year for the stock market, on average.

I don’t like that the S&P500 (above) is below that red, dashed line, nor do I like that it’s below a falling 21-day trendline in blue (Nerds Note: This is the 21-day exponential moving average).  I have two pieces of good news to share, however:

1. The market is still above a rising 50-day trendline (50-day simple moving average), and
2. Some consolidation is completely healthy after a nice uptrend since early-June.

I could ramble on about the Fed, stimulus, Trump and the upcoming election, but I don’t even think it’s necessary, considering how simple the stock market is making this today.

As the saying goes, “A picture speaks a thousand words,” and I believe that’s the case with above picture today.  Above the red line = green light.  Below it = extreme caution.

Till next time…

Adam