Markets find themselves again at the top of the trading range it has been in for several months now. At 212.50, the SPY continues to spin its wheel at this level as buyers turn cautious and the waiting game continues for the next guy to put money to work at these lofty levels.
In reality, a catalyst will be needed to entice investors to put cash to work here. With earnings season pretty much behind us, the market may be looking for the next bit of guidance from the Fed regarding the direction of interest rates. Could it come from the consumer in the form of retail data? Whatever the catalyst maybe, markets appear headed to a resolution of this very narrow trading range and the big question remains... which way do we break?
Now calling market tops has been a very difficult endeavour in this environment. The old adage of "don't fight the Fed" has been engrained into every participants foreheads and most have scars to show for trying to do just that. Nonetheless, the sidelines remain a plausible option for many short term traders and investors. While shorting the market at these junctions has proven tricky, taking your chips off the table or taking profits with the idea of buying again at hopefully much lower prices has been a viable strategy for many participants. This may be one of those times, where this strategy makes the most sense for a great number of participants.
My take here is that we will eventually breakout of this wedge to the upside and tag the upper rails of the longer term channel (blue colored lines on the chart below) at a level of around 216.90 or so. This breakout should come on very thin volume and should fail miserably. Again this could be a one day event and unless you are very nimble, caution is in order.
In regards to the chart below. Note the histogram starting the week struggling to push into green (actually turning lower) as the price oscillator pushes well into overbought territory. Traditionally based on my studies, this is a very dangerous signal and calls for a quick retracement of any move higher.