The stock market took a much-needed rest on Wednesday, which is a technical positive. The last thing we need is a parabolic, blow-off move with the S&P 500 Index (^SPX) breaking out to all-time highs, suggests John Eade, president of Argus Research.
While the rally was only four days, investors may have been chasing returns. The best action that can endure for the longest time is a simple crawl higher (never too hot or too cold). Parabolic advances typically are ending moves. Just look at what happened to metals, cryptocurrencies, and some semiconductor stocks this year.
S&P 500 Index (^SPX)
Source: TradingView
There is a tremendous amount of emphasis on what to buy and when to buy – but much-less importance is placed on when to sell. Never forget that a stock, an industry, or a sector will start a major descent before the growth rate of revenues and EPS peaks and becomes obvious to the masses. The stock market is, and always will be, a discounting mechanism.
So, wat's next?
“The bigger the base, the higher in space” is an old technical quote and, unfortunately, the recent base in time and depth was quite shallow. That may inhibit the potential size of the rally from here, at least in the weeks and months ahead.
The size of the indices base was 383 points (7,621-7,238). A few measured moves equate to targets of 7,890, 8,000, and 8,100. That equates to a rally of only 2% to 5%.
Yet hitting the upper target at the end of the year would leave 2026 in the books with a robust 18% gain. We are in a rocky time seasonally, so the path to 8,000 or higher could be filled with rug pulls and potholes.
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