/Outside the Box: Here’s how to tell if the S&P 500’s move into record territory can last

Outside the Box: Here’s how to tell if the S&P 500’s move into record territory can last

Bonk, bonk, bonk … The S&P 500 is now trying for the seventh time to break and stay above its prior all-time high. The prior six times (between September 2018 and July 2019) all failed.

Will this one finally stick?

Many investors erroneously focused on the prior all-time high as the criteria for a breakout. The actual focal point becomes clear when connecting the four highest “bonk” points. The purple line in this chart does just that and provides a visual explanation of the S&P 500’s

SPX, -0.30%

failure to break higher.

I’ve been watching this line and writing about it for the past six months. It prevented investors from chasing the July rally and provided a sell signal for aggressive investors at the July “bonk.”

The real question is this: Will the S&P 500 finally break above purple trendline resistance?

Let’s look at the evidence:

1. RSI (35) is lagging (bearish divergence)

2. Liquidity (NY Composite advance/decline line) is confirming and strong

3. The wave structure (according to Elliott Wave Theory) suggests a flush-out decline sooner or later before a more sustainable rally

4. Investor sentiment was (and still is) bearish (bullish for stocks), as I wrote two weeks ago.

5. The Nasdaq Composite

COMP, -0.14%

reached a new all-time high, but is below trendline resistance

6. The Dow Jones Industrial Average

DJIA, -0.52%

 is below its prior all-time high

7. The Russell 2000 index

RUT, -0.66%

hasn’t made an all-time high in over a year

8. The Dow Jones Transportation Average

DJT, -1.32%

just fell back below trendline support

Please don’t shoot the messenger, but as you probably noticed, there is a lot of conflict among indexes and indicators (this list is are only a small sample). Anyone unwilling to look at the whole board of evidence and admit this inconvenient truth is either biased or narrow-minded.

Another tiebreaker

I published the chart below in the Oct. 20 Profit Radar Report. The blue lines outline a clear and crisp triangle that formed in the S&P 500 futures. Upper triangle resistance was at 3,002, and was overcome a couple of weeks ago.

Based on the blue triangle, and an Elliott Wave-based wave relationship (where wave B should not be longer than 1.38 x wave A), the S&P could rally as high as 3,187.


Purple trendline resistance is around 3,055. A sustained move above is needed to unlock higher targets (as high as 3,187). Blue triangle support is around 3,000. A close below 3,000 is needed to unlock lower targets.

The conflict among an array of indicators suggests a whippy market, but most indicators have one common denominator: If we get a sizable drop (around 200 points), it would very likely be a good buying opportunity.

Simon Maierhofer is the founder of iSPYETF and publisher of the Profit Radar Report.

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