With the S&P trading dramatically higher since the mid-point of November we have elected to chat about whether the most probable next move is a steeper correction or a sideways consolidation. The attached Daily chart of the SPY demonstrates that the short-term move up since the middle of November has been in a tight upper channel in the overall trend (the Fiscal Bluff correction is seen in the last two weeks of December). The current market is setting up for a (#4) down wave which based on the steepness of the previous down wave (#2) should be more of a consolidation versus a correction. The RSI is in or heading into overbought territory and both the MACD and the STO are overbought. It is our opinion that it would be better for the longer term health of the equity bull market if the next move was a consolidation (sector rotation move) versus a general index correction. The current Band of Bulls is getting too many headlines and a little too happy! We have been equity bullish since the Greek Tragedy but healthy markets do not go straight up, they climb that wonderful “wall of worry”.
Nexvu Capital 