One reason I have continued to be bullish on the stock market is that it hasn't given us any sign of weakness or change of behavior. It certainly hasn't been the most vigorous rally, that's for sure. But a trend will often continue well beyond where we think it ought to stop. Plus, a successful Spring can be a fairly potent indication of strength. On the SPX chart attached, you can see the longer term Supply Line (in red) and the horizontal resistance line (in blue). You would think that this resistance should have stopped the up move - sell resistance and buy support, right?
Look carefully at the character of the price and volume at this resistance area. It didn't react much. Instead, it held its gains and absorbed the overhanging supply. As it came back down to retest the blue horizontal resistance, and then the red Supply Line, it did so both times on light volume and narrowing spreads -- straightforward
VSA principles. It did this while holding the Demand Line of the up trend channel (green line).
Another thing that has keep me bullish is the point & figure chart. The first figure chart (FC) is a 5 point FC of SPX (a pdf file; use the view tab to rotate). I draw this by hand based off the 15-minute chart. It is updated through yesterday. There is a count along the 1280 line that projects up to 1415. This is where we are currently. Now i am not saying that just because the FC had that projection, that the market would go there. But, just like the daily bar chart, the FC shows a fairly orderly sequence of higher highs and higher lows from the Spring in mid-march. No substantial cause developed on the FC to reinforce a significant bearish view. The FC can be useful in many ways.
Currently, the FC is showing we are at a resistance area. There is enough cause to create a reaction consistent with prior reactions, but that would break the current Demand Line on the daily bar chart (green line) and might change the current outlook. That would, of course, depend on the character of the reaction. One of the early Wyckoff/SMI traders used to say that FC count projections were places to "Stop, Look, and Listen" -- meaning you don't just change form bullish to bearish because you hit a FC projection or a resisitance area. You want to assess the market carefully at these areas. Right now, I see no indication of weakness.
There is another projection on both the 5 pt FC and the 3 pt of the 5 pt (or 5 pt by 15 pt FC) that indicates a potential move to the 1480-85 level. Will we get there? Who knows. It is at a level where there was a lot of churning before the market fell, so it would be an area where a lot of supply still exists (dashed line on the daily bar chart). We shall see. I will simply continue to let the market tell me what it will do.
Eiger