The average investor has gone gaga over the potential China trade deal and the Federal Reserve becoming dovish. There is increasing talk of new highs in the stock market.Charts Please click here for an annotated chart of S&P 500 ETF SPY, -0.05% which represents the S&P 500 Index SPX, -0.04%
• As the chart shows, RSI is now making a higher high than the last high. Also, the lows on RSI are rising.In totality, this is a positive pattern and bodes well for new highs in the stock market if prices break out above the resistance zone. This is the most important point here. • The first chart shows that the volume is relatively low on this rally. Normally it is a negative but, paradoxically, in the present context it is a positive. The reason is that the low volume means that there has not been much conviction in this rally and institutions have not jumped aboard. This means there is plenty of fuel left to drive the market higher.• After a strong rally, often the market pulls back to the support zone.
If the China deal were announced before the March 1 deadline as originally anticipated, the probability was 70% for the market to fall on a “sell the news” reaction. I was talking about Dow 30,000 when the Dow was around 16,000. At that time nobody else was talking about Dow 30,000. Subsequently, I have repeated the call several times. Please see “Here’s the case for Dow 30,000 in Trump’s first term.”