A KING-KONG CONVERGENCE OF RESISTANCE
King Kong is not a reference I make often or lightly. Therefore, it may be worth it to pay attention to this posting closely, as it could end up being what makes the difference between an investment portfolio that is glorious or heinous in the months ahead.
As you all know, I participate in a form of technical analysis that only takes into account three factors:
1. Price - expansion and contraction of price ranges
2. Volume - expansion and contraction of volume ranges
3. Trajectory Points (more popularly known as trend lines, which I don't think is an appropriate label) - how price and volume reacts to trajectory points
To put it in a more illustrative, vivid frame of a mind, think of price and volume as a suspected criminal. The trajectory point is the lie detector. How price and volume react to this lie detector tells the investigator (investor) all that he or she needs to know about the intentions of the stock, index, commodity or currency.
There is a convergence taking place among the various leading indices with respect to generational (long-term) trajectory points that is fairly rare in nature. Of more concern is the fact that convergences between price and respective trajectory point is occurring as sentiment, according to various measures, is extremely comfortable with the current bullish landscape.
When sentiment picks up a bullish head of steam, as it has over the past couple of months, paired with historically important levels of resistance that are being met across multiple important averages, the outcome is fairly predictable in nature. You can expect one of two outcomes to take place over the intermediate term:
1. A frustrating, sideways range that creates resentment and loathing among investors
OR
2. A bearish trend that seeks to re-calibrate the bullish mindset through devastation of wealth
In either case, the goal is the same: To create a dislocation in market psychology that yields the ammunition necessary to take on the convergence of technical resistance points we are currently facing. Very simply put, that ammunition doesn't exist currently. It never does when you have a majority of the shorts that are going to be squeezed out of the market and a majority of the investors that are willing to put money into stocks already well allocated. That is exactly where we are now. Investors are essentially facing a steel reinforced, 12 feet thick wall, armed only with toothbrushes and toilet paper.
Here are the four key indices that are right up on King-Kong levels of resistance:
click chart to enlarge
SPX
NASDAQ
RUSSELL 2000
SOX
