Quick Comments – The Rally As I See It – Dec 14 2016

A recent post on my free Yahoo options forum asked what I thought of the market at this critical moment.

In the question posed the investor asked:

The Dow Jones industrial average may be stealing the headlines as the 20,000 mark appears in sight, but the S&P 500 is approaching a critical level of its own, according to one technical analyst who sees a familiar pattern in the charts.
The S&P 500 closed at an all-time high Tuesday, at 2,271.72, mere points below the 2,275 mark, which Miller Tabak’s Matt Maley said is a key spot to watch.
“If you go all the way back to the highs of 2007, if you draw a line along the top of those highs, it basically comes at 2,275 on the S&P, which is basically where we are.”

Here are my thoughts on the rally so far:

There is no doubt that 2275 is a critical level for the S&P but so was 2100 and 2200 and I think 2300 is more critical for the S&P than 2275. The S&P if it breaks 2300 will have accomplished a very clear break-out of the long-term underlying trend of the market from prior to the dot-com bubble market collapse. This is incredibly technically important because if the market does pullback in the first few months of the Trump Presidency, it should not break much below 1900 as a worse case scenario. In other words, we may not see another 45% decline in the markets as we saw in 2000 to 2001 and in 2008-2009 in 2017. There will always be bear markets and unknown events to drive the market lower, but a break above 2300 will build strength at lower levels which should set the market up for buyers should there be a pullback in early 2017.

The 20,000 level on the Dow Jones will definitely steal the show however. This is because the Dow has been the leader in the “Trump Rally”. The rally started first in the Dow Jones Index as the big blue chips were first snapped up immediately after the election results. The S&P and NASDAQ have continually played catch-up as the market rally has tried to broaden.

All the indexes have levels of significance in this run-up but I believe 2300 is more important for the S&P than 2200 is or was. But for the market at present, the key now is the 20,000 level on the Dow Jones. If it is not broken through the market faces the risk of the Dow leading the market back down quickly. A drop in the Dow of any significance now, will really take the other indexes for a fall.

The small cap index the Russell 2000 has confirmed the Dow Jones advance, but for the past 3 days it has continued to slip while the Dow Jones has not. It is important to watch the small cap index for any signs that the small caps are going to move lower. That will be “bad” for the overall market at this point in the rally.

The market has had nothing in the way of bad news since Trump was elected. That has given the rally further strength. The number of short-sellers who have been forced to cover positions in the face of the relentless rally, has added further height to the indexes. At some point however the market will face having to solidify its positions and try to build support levels. The S&P has no real support at these heights. The next few weeks leading up to the swearing in of the new President will be critical for the market. I remain bullish but cautious and have about 30% of my portfolio sitting in cash. I am still holding UDOW and TQQQ Ultra Pro ETFs but today’s announcement by the Fed may be more critical to the market now, than any analyst or investor thinks. We will definitely know shortly.

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