What’s going to happen next? The next day, next week, next month, next year. What’s going to happen next? That’s always the question.
There is one glaring problem with investors and stock market pundits trying to predict what’s going to happen next. That problem being that predicting the future is… well… impossible.
We should all realize this. And let me be 100% clear. No one can ‘predict’ the future.
When it comes to the markets and investing, the best that we can do is to come up with most likely scenarios based on what the market is telling us.
There are many methods of interrogating the market. I personally think most of them are worthless and garbage. But I’ve been around for a while and have done the work to validate that statement.
Being able to identify where the important areas in a market are and then base any investing or trading decision on valid data and a valid analysis of the risk vs the reward is paramount.
With that said, here is the position of the stock indices. Specifically I will look at the S&P 500, Nasdaq 100, and Russell 2000.
Right now, the S&P 500 and Nasdaq 100 are moving back to test an area of resistance that turned them both downward last week.
In the S&P 500, that resistance zone is 2107 – 2121. This is the primary hurdle to an upside resolution to the long-standing trading range and sideways price action we’ve seen for months.
In the Nasdaq 100, that resistance zone is 4492 – 4535. This is the equivalent zone that must be overcome if stocks are to see any kind of leg higher in the days, weeks and months ahead.
Of particular interest is the fact that the Russell 2000 is near breaking to new highs. This would be a bullish development in the near-term if it acts as a catalyst to spur the S&P and Nasdaq above their resistance zones.
You can see on the chart below that the Russell 2000 has been working higher for the last few weeks, beginning when the S&P 500 was pulling back from its new all-time highs.
As far as what will happen next?
Well, if the stock indices can all move to new highs, this would put them in synch to the upside. When all of these indices are moving in the same direction, that’s when the largest moves are seen.
If there’s a failure by one or more of these indices to get in synch to the upside in new high territory, then there’s no reason to expect any significant gains in stocks while that’s the case.
And as far as being bearish… there are well-defined levels of support below in each of these indices. If the indices fail to go higher, that will be a red flag. But only if prices break below their important support levels, getting in synch to the downside, would there be a reason to anticipate a significant decline immediately ahead.
So as far as ‘what’s next’, let’s not try to predict something that is unknowable. It’s much more prudent to just play along and keep yourself on the right side of the market. This is what I do for the Investors Protection Service.
Let the market tell you the right course of action.
And the leave the predictions to the fortune tellers.
