How High Will the US Stock markets Go?

How High Will the US Stock markets Go?   This is the question everyone is asking these days.    One month ago, everyone was short the stock market or in cash.    The people that were short got caught and had to close out their positions right away at market price.   This is one reason why the markets have gone up very fast i.e. short cover rally.

Now when the market gets to a resistance level, people are saying this is going to be the top and it can’t go higher.   Well, it is going higher.   This is why you always wait for “confirmation” before saying it can’t go higher.     For a confirmation to occur for an upward movement, you have to break a major support.     We have gotten to various resistance levels but we have yet to break a major support.   This is why we continue to go higher breaking more resistance values and now we are close to the all time high!

So where do we stand today?

Below is the weekly chart of the E-mini Sp500 futures provided by eSignal.     At the beginning of the year, our forecast was the ES to reach 2047 by mid April.   This would be below the trend line that everyone draws and would signal a lower high within a long term “ugly” consolidation pattern.    We reached that resistance but never broke a major support.   As a result, price proceeded to the next resistance we outlined to be 2097.81.     The problem with this resistance is that it is above the trend line and if it breaks the trend everyone will think we are going to retest the all time high and break it.    This is exactly what is happening now.   The week is not over so we have to see where we close.    If we close above this level than the probabilities to retest the pivot high is going to be high.    There is a window of 3 weeks that the markets can break the high.   If it does, our forecast for 2016 will change based on this weekly action.

2016-04-20_es_weeklyt

Below is the weekly chart of the $VIX,   The $VIX has an inverse relationship with the stock market.  We have been using the VIX to be able to predict the weekly/monthly price movements for the US stock market for over 2 years now.     We are approaching the bottom support very fast.   Once we get to the support, there is high probability that the market may have reach a temporary high.    We have to wait and see what the charts look like at that point.

2016-04-20_$vix

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About the Author Manesh Patel