S&P500: Lower Highs and Higher Lows Can't Last Forever

Just some quick thoughts on the S&P500...

I think there are two important developments to watch carefully right here. The first is the series of lower highs that we've seen since the peak in May. The downtrend line has been intact since the summer and has now been tested 5 times. The S&P500 has failed to breakout at each of those attempts. The most recent tests of resistance came with the added supply of the 200-day moving average.

The second development is on the opposite end of spectrum. We've seen three consecutive higher lows since the October 4th bottom was put in. Each of these higher lows were made on days that kick-started monster rallies. Both of the previous major lows were put in on a Monday or Tuesday and then rallied for the rest of the week. Today's face-ripping rally comes early in the week, this time a Tuesday again. Will history repeat itself?

This combination of lower highs and higher lows cannot last forever. Eventually something's gotta give. We're looking for the next higher high after breaking the downtrend or next lower low after breaking the downtrend to signal the direction of the next leg for the market.

Realistically, I think it is probably best to expect more whipsaws in both directions. When in doubt trade smaller right? There's nothing wrong with that. Stop Losses are fine. Heck, I got stopped out of some new positions yesterday that are flying today. It happens. And it's OK because we are still here to fight trade another day.

$SPX $SPY