It was around mid-May that Zenolytics pointed to the 2895 level as THE key level to tell whether the markets were headed into a euphoria driven ascent higher or a despondent, panic driven descent lower. In the case of the markets into the second half of May, the despondent, panic driven descent lower won in a somewhat rousing fashion. The trajectory at S&P 500 unleashed mayhem on the markets as it has been prone to doing over the years.
The same trajectory that was key to the 2895 level is once again about to come into play at 2910. This trajectory point is a monster, having more than 30 years of history behind it, being responsible for multiple instances of mayhem in the markets for both bulls and bears. In other words, there is a tendency for the markets to amplify volatility off of this geometrically important point.
Keeping this in mind, although our view from here on equities continues to be generally bullish, there is some reason for caution moving through this week. A prudent bull should take some profits off the table if they were mindful enough to take advantage of the weakness in the markets exactly as the buying window for equities opened early this past week.
As the market approaches the 2910 level, it will, at a very minimum, be a pit stop for the market to recharge its engine. What nobody knows presently is how the market will react to this level.
Will the S&P simply consolidate around 2910?
Will the S&P not pay any attention to 2910, blasting through it?
Will the S&P reverse right off that level, moving dramatically lower?
Each scenario has different short to intermediate term ramifications for equities. As we approach this level, it will be the second character test for the market since Monday's bottom. The first being a close for equities at or near the highs for the week, as discussed on Twitter this past Tuesday.
Given the dramatic nature of this past week's rally, Zenolytics is expecting, at the very least, a pause at these levels. The buying window for equities is now closed until further notice.
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