In late 2014, the market was alive with chatter about the dreaded Hindenburg Omen which was supposed to foretell a collapse. In notes at the time we explained why this analysis was so much claptrap. Subsequently, the S&P added 33 percent.
Now the media is awash with the idea that the S&P is in danger of imminent collapse, but this recent talk is just as specious as the Hindenburg omen.
Markets do not suddenly collapse out of the blue, or because some magical number is reached. Markets most often give clear signals of weakness and these show up as end-of-trend chart patterns.
The most common patterns are:
A careful analysis of the S&P chart shows no end-of-trend patterns and this suggests that there is a very low probability of a major change in the trend. However, this does not rule out the potential for a retracement and consolidation. This behavior is common in all uptrends and provides a good buying opportunity.
Investors wait for the market to potentially test the lower edge of the short-term GMMA near 2,300. A rebound from this level is a buying opportunity for a continuation of the uptrend. A breakout above 2,400 has an upside target near 2,530. The target is calculated by using trading band price projections — a method we have successfully applied to the S&P to set targets since 2011.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.