The Most Important Trends in the U.S. Stock Market Now

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Even if you’re a day trader or short-term swing trader, I think it’s a huge advantage to understand the direction of the underlying trends. For me, who specifically looks out weeks and months, trying to make money this quarter, my monthly candlestick chart review is essential. I can’t begin to tell you how much this has helped me avoid blindly calling tops or bottom fishing in never ending downtrends. It most certainly helps us err in the direction of the underlying trends which, of course, increases our probabilities of success.

[I teach investors how to identify trends using Technical Analysis on my course on the Investopedia Academy, if you want to learn more.]

Here is the S&P 500 pretty much right in the middle between key support near 2400 and our upside objectives just below 3000. There is nothing in this chart suggesting we are at a major inflection point or completing any kind of massive top. To me, this is just an uptrend and prices are on their way to hit their targets, which is perfectly normal:

The Nasdaq Composite, on the other hand, reached its upside objective of 7600 in January and has been consolidating below that level ever since. I don’t see anything out of the ordinary here at all, and appears to be a consolidating near a logical level. The question becomes: Was that it? Was that the move, and now we reverse from this key extension target? Or should we instead focus on the fact that the Nasdaq just went out at an all-time monthly closing high, which is a characteristic of an uptrend, not a downtrend? Holding above 7600 would signal to us that the next leg higher in Nasdaq is ready to begin (also note: the Nasdaq 100  QQQ went out an all-time monthly closing high as well)

Here is the Dow Jones Transportation Average consolidating its 2017 gains just below the upside objective near 11,000. We consider this to be perfectly normal behavior, and a consolidation near a logical level. There is no evidence here of a major top, just a breather after reaching its target. Prices holding above 11,000 would signal to us that Transports are ready to begin their next leg higher:

Moving on from the largest of the largest large-caps, the Mid-cap 400 continues to consolidate gains this year above support, not below resistance like some of its other larger-cap counterparts. We’ve been looking at mid-caps as a great indicator of trend, noting that a break below 325 could prove catastrophic for the index, and in turn stocks as an asset class. Not only has this support held, but we are pressing up against new all-time highs which I consider to be normal behavior within an ongoing uptrend. If we’re above 325, we want to stay long MDY with a target above 480:

In the tiniest of companies, “riskier” some would add, we are blowing out of this consolidation and already ripping to new all-time highs. This is the strongest of all the U.S. Indexes which suggests to me this is evidence of risk appetite, not risk aversion. We want to stay long Micro-caps $IWC if we’re above 100 with a target up near 127:

When I look through all of the U.S. Indexes, I am not seeing major tops. People are obsessed with comparing the current market environment to 2007. During that period we were seeing deterioration in market breadth and major tops forming all over the place, not just in the major indexes but in the biggest stocks too. We are simply not seeing that today. Most indexes are making new all-time highs, while others are consolidating gains near logical levels.

The weight-of-the-evidence is suggesting that we are in a bull market in stocks. Historically, in bull markets, we want to be buying stocks, not selling them. Read more of my analysis here.

JC

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