Five Week Rally Teaches A Lesson
The S&P 500 remains on track toward the 7,400-plus target zone, but a short-term breather would be normal after a powerful five-week rally
Over the past five weeks, the market has delivered a clear reminder that opinions, fears, headlines, and narratives do not get the final vote.
The price action does.
The risks are real. The rally is extended. A short-term breather would not be surprising.
But as long as the S&P 500 remains above 7,002, the breakout remains intact and the 7,400-plus target zone remains in reach.
The Bottom Line
We widely expected this year to bring more volatility and larger price swings than last year.
So far, that expectation has been met.
After three months of tight consolidation, a five-week correction has now been followed by a five-week rally. The Nasdaq, S&P 500, and Russell 2000 have broken out to new all-time highs. The Dow is not far behind.
More importantly, bullish price action remains in motion.
The S&P 500 now has three upside targets in or above the 7,400 zone. As long as price remains above 7,002, those targets remain in play.
Strength begets more strength most of the time.
Volatility can work the same way.
When price starts swinging this fast and this far, volatility often persists. That means the upside targets remain reachable, but investors should also expect bigger swings along the way.
The message is simple: Price action comes first. The 7,400-plus target zone remains in reach. A breather would be normal. Below 7,002, the message changes. Until then, price gets the final vote.
What Happened This Week
The market had several opportunities to break lower.
It did not.
It had to absorb:
• Major mega-cap earnings
• The Fed decision
• GDP data
• Inflation pressure
• Elevated oil prices
• Iran and Strait of Hormuz uncertainty
• Questions around AI capital spending
• A powerful rally that has already left many stocks extended
Yet the indexes still closed higher.
That does not make the risks around inflation, oil prices, or capital spending irrelevant.
It means price is currently absorbing those risks.
As usual, following headlines, opinions, gut instincts, and narratives is not nearly as useful as focusing on price action first.
Price action is the priority. Always.
The Price Action
So far, any consolidation has remained limited in size and duration.
Once the known catalysts were digested, including the Fed meeting and four Magnificent Seven earnings reports, big buyers returned. That produced follow-through strength on Thursday and during the first hour of Friday’s trading after Apple reported the night before.
New highs remain bullish until proven otherwise.
The longer price holds above the January high near 7,002, the better.
To prove otherwise, price would likely need to re-enter the prior 7,050 to 7,150 range, then break and hold below 7,002.
That would represent roughly a 3% decline from last week’s close.
One of the only negatives, and it is a minor one for now, is that Friday’s opening strength was sold, resulting in an intraday reversal. That formed a potentially negative reversal pattern, but it requires confirmation this week.
That distinction matters.
One reversal candle does not end an uptrend.
Confirmation does.
As reviewed previously, as long as price remains above 7,002, three upside targets remain in play:
• 7,425 Fibonacci extension, +2.7% higher
• 7,459 prior range breakout target, +3.2% higher
• 7,688 current range breakout target, +6.3% higher
The 7,400-plus target zone remains in reach.
