Bonk, bonk, bonk … The S&P 500 is now trying for the seventh time to break and stay above its prior all-time high. The prior six times (between September 2018 and July 2019) all failed.
Will this one finally stick?
Many investors erroneously focused on the prior all-time high as the criteria for a breakout. The actual focal point becomes clear when connecting the four highest “bonk” points. The purple line in this chart does just that and provides a visual explanation of the S&P 500’s SPX, +0.62% failure to break higher.
I’ve been watching this line and writing about it for the past six months. It prevented investors from chasing the July rally and provided a sell signal for aggressive investors at the July “bonk.”
The real question is this: Will the S&P 500 finally break above purple trendline resistance?
Let’s look at the evidence:
1. RSI (35) is lagging (bearish divergence)
2. Liquidity (NY Composite advance/decline line) is confirming and strong
3. The wave structure (according to Elliott Wave Theory) suggests a flush-out decline sooner or later before a more sustainable rally
4. Investor sentiment was (and still is) bearish (bullish for stocks), as I wrote two weeks ago.
5. The Nasdaq Composite COMP, +0.68% reached a new all-time high, but is below trendline resistance
6. The Dow Jones Industrial Average DJIA, +0.62% is below its prior all-time high
7. The Russell 2000 index RUT, +0.69% hasn’t made an all-time high in over a year
8. The Dow Jones Transportation Average DJT, +0.57% just fell back below trendline support
Please don’t shoot the messenger, but as you probably noticed, there is a lot of conflict among indexes and indicators (this list is are only a small sample). Anyone unwilling to look at the whole board of evidence