#8. ZC: Thin Air?
Intro
As Index prices continue to rise I find myself trading less, which is a nice reprieve. With more time, or bonus time as I like to call it, I've been experimenting with writing scripts, specifically Tradingview indicators and strategies.
My latest one provided some clarity.
Air
The major indexes are flying and the air is getting thinner up here. It appears nothing will stop these soaring beasts from reaching orbit.
Prices at extremes creates extremes. If you look across FinTwit, Substack, CNBC etc…there are two highly vocal camps; ‘The Supercyloors’ and the ‘Must Correctooors’.
Both have compelling cases but also, both have their agendas.
In a previous article I posted, I highlighted how the indices appear to be at an inflection point. The Dow is at the top of the upper channel, providing clear resistance since the indexes inception, while the S&P500 has broken out of it’s.
This is indeed a very interesting time to observe the financial markets. The reality is, those two camps mentioned earlier are right to be extreme. We are living the extremities.
Line of Least Resistance
Jesse Livermore emphatically spoke about the Line of Least Resistance. It’s evident that the line of least resistance for both is down, considering the price points for both.
I took inspiration from Livermore, coding a script that gave me some indication of the Line of Least Resistance, amongst other criteria, across different markets.
Here’s what I get from the indicator for the major indices.
Dow
Price acting similar to the 2021 top.
The Red Label Down symbol signals that price is looking to correct.
A series of ‘chop’ with Red and Green Labels followed a significant rally.
S&P500
The S&P has shown remarkable strength and momentum, indicated by the green triangles.
A first Red Label has flashed but upward momentum continued. This is significant.
More green triangles following the Red Label indicates price wants to go higher.
What does it mean?
I think the air is thinning, the winds are slowing but crucially, the momentum is strong. I don’t think we get a correction just yet but the Line of Least Resistance will be respected. I think the Dow will continue to chop and grind up before reversing.
The S&P on the other hand, I think has gas in the tank just like it did in the late 1920s. You can see from the log chart shown further above, that the S&P had ran hot before the depression top, smashing above it’s channel before ultimately succumbing to the Line of Least Resistance.
The air is thin but we’re not ready to breach yet.