Stock Market Trading range: what's next?

Until the short term trend reverses course, the markets will be stuck in a trading range. There is a solid zone of support for the Dow, which falls in the 29100 to 29,550 ranges. To indicate the correction is over, the Dow would have to close above 34,800 on a monthly basis. For the SPX, there is a strong layer of support in the 3600 to 3800 ranges. While the NDX and Russell 2000 tested support and bounced higher, the Dow and the SPX don’t have to take the same path. The indices could diverge over the short-term timelines, but eventually, both the Dow and the SPX are likely to test these levels.

Remember, the more volatile, the more nerve-racking the current action, the better the opportunity. The rally phase will last at least 2X longer, but we suspect, at a minimum, it will last 3X longer, and the intensity will triple that of the downward phase. The actual rally phase count starts only after a long-term bottom is in; if it holds, the current bottom will fall under the intermediate category. A final selling wave will set the bedrock for the next massive rally. Investors don’t understand that the best time to buy is when everything looks bleak; instead, they wait for things to look bright before jumping in and feel very grim when the bottom falls out.

Conclusion

A blistering 3-day rally will probably mark the end of the second version of shock and awe. Market Update May 11, 2022

If the above comes to pass, it will be the best signal that a bottom is in place and that the markets are ready to blast out of their trading range. While the markets have rallied for three days (25^th to 27^th of May), Wednesday’s move was mediocre. It is acceptable but not perfect—ideally, the Dow tacks on 120 plus points (per day) for three days in a row.

The equation must balance, and a more decisive upward move will always follow a substantial correction. Market Update May 11, 2022

The equation always balances; it’s just human heads that lack balancing, for they want everything to work out ASAP. The markets don’t give a damn about our wishes and desires, and the result is not a pretty sight to those who attempt to defy them. This correction will resolve, as it has since the day we got off the Gold Standard. There is no other direction but upwards over the long run; the long term does not imply years and years; in today’s world, it generally means less than 12 months.

The game plan is always the same; politicians and central bankers have to find a way to help their real masters. These big chaps only favour one thing; lots of money.

Remember these quotes from the May 11, 2022, update; they will serve you well in times of volatility

The same playbook has been used since the inception of the markets. The masses never learn as their reasoning is always the same “it’s different this time“. The crowd lives in a never-ending loop of plutos allegory of the cave.

They will never stop using this narrative, for it never fails to produce the desired result. Quality shares are being given away, and the big players are only too happy to grab them.

In conclusion, while the markets are stuck in a trading range, they appear to be building momentum to mount a rally that could last until the 4^th quarter. After that, we expect the markets to experience a relatively robust correction.