Topping or Breaking Out?

I haven’t done an update in over week as, really, not much has changed.  The S&P broke above my primary resistance lines to start the year and has drifted higher since via a couple of gaps.  It is not yet to the 1320-ish area that I would target for more serious resistance.

But there are some interesting signs developing outside of the S&P.  On the bullish side, Financials – which have long lagged, are perking up.  Below, the XLF (Financials ETF) has significantly outperformed SPY since the start of the year.

Also, Small Caps (IWM) have outperformed SPY, and are close to breaking to the upside of a Pennant pattern in a chart of their relative performance (IWM/SPY).

Emerging Markets (EEM) are also performing well relative to SPY and may be ready to break to the upside of a falling (Bullish) wedge pattern.

On the other hand, VIX also appears to be nearing the bottom of a falling (Bullish) wedge pattern.

And in a strictly “fun-with-charts” exercise, check out the falling (Bullish) wedge in a 2 year chart of the VXX/SPY ratio.  It’s worth noting that wedges resolve with a break in the opposite direction  (rising wedge breaks down, falling wedge break up) about 66% of the time.

It’s an interesting riddle.  I suspect the S&P itself isn’t a particularly revealing chart that this point.  But there seem to be plenty of clues elsewhere (Financials, Commodities, Emerging Markets, Treasuries, etc).  The messages, however, seem mixed at this point.

Continued bullish behavior from the Financials complex would seem to suggest this rally will have legs.  Legs beyond just 1320 on the S&P.  Same with continued gains from Emerging Markets and Small Caps, which would suggest stabilization of the global economy and growth going forward.  As such I’ll be very curious to see if the S&P can break above that 1320ish level should Financials, Commodities and Emerging Markets continue to display strength.

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