TheSlayer's Market Thoughts

SPY July 15 2013

The market continued its digestion of the gains of 7/11 (how very appropriate) on Monday, July 15. It was quiet, with a gentle move higher that petered out in mid-afternoon. After that, the market remained within a few points of the day's high without ever seriously threatening extending it higher. The Nikkei (closed Monday for a holiday) has recovered about 2/3 of its losses as well, which is healthy for global markets.

We have something on the order of ten green candles in a row. The market hasn't gone back and remained within a previous day's trading range ("inside day") in almost two weeks, much less had a down day. In a normal market, you would almost never, ever see this kind of extension. Up 11 straight day. The statistical chance of that happening is miniscule - but it is happening. It used to be that traders would start sounding the alert after three up days. Statistically improbable events happen all the time, the hard thing is knowing in advance which they will be. What is happening is statistically improbable.

What does that tell us? Not too much, aside from the fact that this is not a normal market. However, the growing probability is that, when a real pullback (meaning, more than the usual 3-5 point pullbacks we've been seeing) does occur, it has a lot of ground to cover. The last area of real congestion/support/digestion was in the 1610-20 region. That's a long way down. A touch of that area again shouldn't be ruled out by any means, but something down to the 1630s would probably scare enough people.

Nevertheless, the market reality is that it is going up. There must be behind-the-scenes forces that some smart-ass journalist in Rolling Stone or somewhere like that will someday reveal with slick prose as "the reason" for the big surge, but it really doesn't matter: the market is on automatic and going up. To the downside, a break below 1660 in the futures would be trouble, but then, any drop would probably scare a lot of people. The market is like a military offense which is petering out, but the Generals are deathly afraid of halting it because they know that once they do, the enemy will take the initiative.

Watching for a desperate lunge toward new all-time highs and 1700, with a likely failure somewhere between here and 1700ish and then a sharp correction.