$ index is consolidating from the late Oct high at 87.85 and is still seen as a correction, with eventual new highs above 87.85 favored after. Also, the market is trading in tighter ranges from that high and appears to be forming a pennant/triangle, generally seen as a continuation pattern, and adding to the view of an eventual new highs. On a very near term basis, these patterns break down into 5 legs, raising potential for a final test of the base (currently at 84.30/40), before resolving sharply higher (see “ideal” scenario in red on daily chart below). Long from the buy target in the Oct 22nd email at 84.75 and for now, would stop on a break below the base of the pennant. Would also stop on an intraday break (versus waiting for the close) as it could trigger a sharp bout of selling back toward the Oct 30th low at 83.10 and even temporarily below. Note also that this would not change the bigger picture bullish view, so would be looking to rebuy at lower levels if that does indeed occur.
Longer term, the market is nearing overbought after the sharp gains since the March low at 70.70 (see weekly chart/2nd chart below), pennants generally precede final legs in larger trends (suggesting another upleg may be the last), longer term resistance is just above the recent highs at 90.00 (38% retracement from the July 2001 high at 121.00) and numerous financial market cycles reverse in mid Dec. Put all of this together and “ideally” suggests a final push to new highs into the 90.00 area in the mid Dec timeframe, and before completing at least a multi-month top (see “ideal” scenario in red on weekly chart/2nd chart below). However, we don’t want to get too far ahead of ourselves so for now with at least some further upside favored, would maintain the long held, longer term bullish bias.
