Ever since early September we have been pounding the table that the path of least resistance for equites was higher because there were simply way too many bears. October’s ~8.5% rally and best single-month performance for the S&P 500 in more than three years offers a textbook example of what can happen when the bearish boat becomes too crowded within the context of a long-term market uptrend.
However, here we are nearly back at SPX 2100 (SPY $210) and equities are running into a thick layer of resistance which bogged them down during the summer:
SPY (Daily)
The volume-by-price bar around the SPY $208-$209 level is considerable and helps to illustrate just how much supply exists just above current levels on the S&P.
While the holidays (Thanksgiving and Christmas) offer bullish seasonal tailwinds it is difficult to foresee what catalysts will push the S&P to fresh all-time highs. Today’s bearish engulfing candlestick in the S&P 500 could indicate that some pullback/consolidation is in order and a more prolonged pullback/consolidation may very well be the most likely scenario into year end.