Yet Another Incredible “V” Bottom

Yet another incredible “V” bottom in the market, shown above in the S&P 500 Chart.  But after such a retracement, can we really expect it to go straight back up to all-time highs?  I personally don’t think so, my view has changed since the 100 point drop in the S&P over the last week or so.  I think now we will see a lower high put in coinciding with further selling.

Just about the only chart pattern I ever pay attention to is the “head and shoulders pattern”.  It is a pattern that many market participants recognise and act upon, ultimately driving it to become a reality on a chart.

The market surprised everyone and went straight back to new highs in December after a sizable retracement, but can it do it again?  In the illustration above I am showing the more likely scenario.  In my opinion a lower high and therefore a “right shoulder” seems likely.

So while I am disappointed that I did not catch the low here after missing most of the downside, I am somewhat suspicious of this latest spike higher over the last two trading days.  So let us see how this pans out.  Should we be breaking out to new highs I will be looking to get back in again.  But for now, I will remain patient and wait for my time to strike.

Market News:

U.S. stocks surged for a second day on Thursday, with benchmarks turning higher for the year, as oil steadied and on thinking the Federal Reserve and the European Central Bank would buttress the global economy.

Data Thursday had jobless claims dropping by 4,000 to 294,000 last week, with the better-than-expected number coming a day before the payrolls report for December.

Comments late Wednesday by Fed Bank of Chicago President Charles Evans helped Wall Street’s bullish slant, with Evans saying he did not believe the central bank should be in a rush to hike interest rates.

In a letter to European lawmakers, ECB President Mario Draghi said the ECB would reassess its monetary-policy stance early this year, and that ECB moves could include sovereign bond purchases, Bloomberg reported on Thursday.

Friday:

8:30 a.m.: Nonfarm payrolls for December

8:30 a.m.: Unemployment rate

10 a.m.: Wholesale inventories for November

News Sources:  CNN Money & CNBC