The bounce off 182 in the SPY as outlined in my previous post materialized as expected and the S&P 500 has been cautiously moving upwards in recent days. It was a crucial support area and marked as one of a triggering level to watch in the member’s dashboard.

SPY-20160129

Perhaps one of the most pressing questions in everyone’s head is whether we have seen the bottom and can ride on a sustainable uptrend going forward. I assert that we have not. Let me explain why we are most likely trapped in a counter-move against a bigger downtrend.

 

Markets will recover enough to work off the oversold conditions and to revert back to the mean until evidence of a slowing economy and worries about the inability of institutional counter-measures overwhelm public sentiment again. An intermediate upside target looks to be around 200 in the SPY. Thus, we have yet to endure a second wave down until prices realistically reflect the primary fundamental factors such as earnings. Let me remind you that we are still looking at an average P/E ratio of 20 in the S&P 500, a far cry from the mean of around 15. We need to work off this excessive optimism because there is no big wave of technological progress that captures the mainstream.

Quite the opposite. Smartphone technology has peaked and the market is saturated as clearly observed in Apple’s iPhone sales. We take it for granted already, and yearn for the next big thing. Yes, there are small innovations here and there, but what I’m talking about is a breakthrough technology that fundamentally changes how humans live and work and get mainstream adoption. Until we see that coming in the distant horizon, we will have to patiently wait and prepare our cash to invest in disruptive companies at bargain prices.

I will prepare a chart that illustrates what I’m seeing for the coming 12 to 18 months in next week’s post. Meanwhile, enjoy the uptrend. If you missed our signal, become a member today and reap its benefits.