With the market Action we have been witnessing over the last few months, I thought it would be worth taking a minute and looking at each chart level I follow in one place. If you want to understand these charts better before digging in, start here: RSI Chart Explained
Starting with the Monthly view, we can see RSI on the $SPY & $QQQ are very elevated, but we need to remember not only that markets can stay overbought for a long time, but also these are monthly charts so the picture moves much more slowly than you can visualize it. $IWM on the other hand looks like it has been in a flag all year (discussed that in the SIN report many times) and might be getting close to an exit. Sometimes studies also suggest the consolidation after a move usually takes 1/3-1/2 the time. The current consolidation lasted about 9 months after an 18 month leg higher.
The weekly view worked it’s way out of overbought bringing the RSIs down to test 40 for the first time in a while. The $IWM is looking like a spike since it only stayed below for 1 week, but needs to get back over 60 to confirm that. For the most part these held the bull ranges and are now rocketing back higher and have room until overbought is an issue again.
The daily charts have been on a tear since mid month, and are now getting close to ovebought, but not there yet. As hard and fast as we got here, there is still a little room if the markets want it. After clearing the divergences we had, there is a chance we could go into another long run of overbought states we have become accustomed to over the last couple of years. That said, I do think it would be healthy if we digested some and filled a gap or two below, but there is no rule that says we must.
The 65min view shows the intraday action has been fierce off the bottom, but not really straight up. There have been many overnight gaps and then intraday consolidations only to be bought going into the close. They are steep, but there is definitely some stair stepping as we moved higher. If this continues, we could be in for a bit more of intraday only pullbacks which will really frustrate those trying to get on board.
Long time followers have heard me use the term “lockout rally” which means a rally that doesn’t give many easy spots to get on the train. These usually run further than most expect and then get broken by short and sharp 1-2 day pullbacks. I don’t know if that is what will continue or not from here. I know many would like a few days to set up bigger patterns, which I think is a reasonable assumption some time in November as well. The only question I have is when and how much higher will we be when it happens?
The markets rarely make it easy and this time is no different; but I do see the action above as pretty bullish and likely to see some continuation in front of us. The only issue is how and where to get involved in the short term and that is where your homework and trade plan come in. Play for the win, but prepare for the setbacks as they are likely to intervene.