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Bullish Island Reversal

You can blame Omicron or elevated valuations or call it a
Fed taper tantrum. Bottom line, the market was overbought entering the
seasonally weak beginning of December. In a year with big gains early December
tax-loss selling, some profit taking and yearend portfolio restructuring is not
surprising.

All of the above and some geopolitical worries likely
conspired collectively to cause the recent selloff. But today’s action in DJIA
(the oldest reliable benchmark we know) as shown in the chart above created a
bullish island reversal. DJIA also bounced off the uptrend line from the June
and September lows right near the 200-day moving average and above support at 33700.
Today’s rally also closed the island gap near 35600, which is also around support/resistance
at the August high. And to top it off there was a new MACD Buy crossover and
histogram confirmation.

So, technically speaking the market likely found some solid
support here and is poised to rally to continuing new highs into yearend on the
still super accommodative monetary policy and rather robust economic and
corporate readings.

Our outlook remains bullish for the remainder of 2021 and as
long as the proverbial stuff doesn’t hit the fan, new highs are likely before
yearend and we would not be surprised to see the S&P 500 encroach upon the
big round number of 5000. 2022 will likely be a different case and we will
address that thoroughly in our 2022 Annual Forecast to subscribers next week.

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