Equities Run Into Overhead Supply

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.