Last week we had a sentiment reading at 96% bullish. That is a high reading, but it wasn’t at extremes. There was a channel that was being followed, which lined up with a possible top and we did get a 30 drop shortly after. But the bulls found support and were able to push the S&P 500(SPX) to new highs and break the smaller channel I was following.
The one-day drop was not enough time to burn off any of the overbought technicals and high bullish sentiment readings. There are two other channels that I am following from here and unless they are broken, upside may be limited for the bulls.
The top of the first channel appears to be resting around the 1769ish level-which is also a pivot. If the bulls can blast through that channel, then the next upside channel line is right around the 1789ish levels. With the SPX trading at 1764 as I type, upside seems to be somewhat limited, IF the SPX followers either one of these channels.
There are bearish divergences in place on the 60 minute chart, which is also sending out some warning signals. The SPX has been on a tear since the 1% bullish sentiment reading on October 9th and has not really had any true consolidation period. I think the upside is getting a bit risky here and I would at the least, wait for a better entry where you don’t stand the risk of buying just as a break hits. Whenever we have seen these types of “NO BREAK” moves, the recoil in the opposite direction have been quite fierce.
I am not sure this time will be different, but I will not be chasing here.
