The SPX has been on a massive move higher off the October lows. It makes sense as sentiment hit extreme bearish levels (bullish for the stock market) and there were a boat load of traders short expecting a “crash like move down” As you should know by now, whenever everyone is expecting the same outcome, usually the exact opposite happens-and that is exactly what has taken place.
As bearish as everyone was just 4 weeks ago, everything has changed. Now it is hard to find anyone who is bearish on the markets-hence the extreme bullish sentiment readings we are seeing.
Mr. Market always has a way of catching the “herd” leaning in the wrong direction. Are we setting up for that type of shocker again? Well, I am having a hard time finding anyone who is expecting the SPX to trade below 2000 before it reaches 2150 or even 2200. Most are labeling it the “Santa Rally” which is something they made up themselves. The true Santa rally has a specific time period and it is not now.
So why am I expecting a down week? (SPX is +15 as I am typing this 11/02/15) As I mentioned above, sentiment is at extreme bullish levels we have not seen in 2015. That is not a trade alone-but we also have some important dates this week-which you can get for free below. On top of that, there are a clear 5 waves up and bearish divergences on the daily charts, as well as every other time period.
A typical retracement after 5 waves up is 50%-62%-78% from low to high. That is suggesting a drop down to 1981 shallow end down to 1917, deeper end. If we were to use just the 50% retracement, then expecting a pullback down to the 1981 would fit the profile. The question at hand is, where and when would this expected drop hit.
There is resistance above and from what I am seeing, I believe the unexpected drop could hit sooner than anyone expects. It may set up a great buying opportunity if support hold.
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