Jun 8, 2014


The market seems very strong a lot of emotions and euphoria again..... I am skeptical, I think it is strong only at first glance... but let us forget emotions and see what the statistic says.
This is a chart of SP500 with RSI since the bottom in 10.2011 - the second leg of this bull market.
I think the market is overbought and the move last week was exhaustion. RSI seems to confirm this moving to 73(the highest levels for this period 75)

Vertical line - RSI exceeded 70 and entered overbought territory
Circle - RSI touched 70 overbought territory

I see two scenarios repeating:
1 - pause for several days, another move higher and a small pullback.
2 - correction follows in the next several days.

If we count only the vertical lines we have probabilities "scenario 1/scenario 2" - 30%/70%
If we count both we have probabilities "scenario 1/scenario 2" - 40%/60%

So we should watch for two scenarios:
- 30%/40% chance for a sideway move with low somewhere near to the 1920 area/MA50 hourly and another move higher probably 2000 before a pullback.
- 60%/70% chance for a short term top in the next several days and a pullback - target 1850-1860

P.S. The other interesting thing is every time when we see case 2 serious drop follows - 100% track record:)


  1. But heliocentric bradley theory says the high of 2014 will be mid JULY.
    If serious fall occurs, then the high will be in June.

    1. I do not expect serious drop now, only a pullback... 1900 for example.
      After that we should see a new high followed by a serious correction.